Gold World News Flash

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• California Employment and Oil Use Data: Dialing Back a Decade
• ETFS Rolls Out Physical Precious Metals Basket ETF
• Dollar Doldrums
• Lira On Chile's Triumph, America's Exhaustion
• The quantitative easing guessing game
• New Mortgage Crisis in Iceland: Could U.S. Be Far Behind?
• Analysis: G20 Divisions On Display As Imbalance Plan Fails
• Germany Calls Out Geithner's Hypocrisy, Says Money Printing Is FX Intervention
• Silver Shortage Looms: Rick Rule
• CFTC Weekly Options Update: Total Treasury Spec Longs Surge By 40% To 2010 Record, Dollar Inflection Point Reached?
• More evidence of ignorance of gold
• Guest Post: U.S. Financial Markets: The Well Has Been Poisoned (Anger of the Honest Part II)
• Get Ready For The Demise Of The U.S. Dollar (eventually)
• G20 forswears currency, trade wars but sniping starts right up again
• Precious metals weekly wrapup at King World News
• Guest Post: Depression Within A Depression
• Building Your Own Convergence Fortune
• Gold and Silver Hold Steady...Ready for Nov 2-3 FOMC meeting..commentary Oct 23.2010
• KWN Weekly Metals Wrap – Gold Market Pullback
• Silver shortage looms, mining stockbroker Rick Rule tells King World News
• Where can we find 20,000 tonnes of gold?
• Oil and Gold Traders Await Heavy Event Risk Next Week to Define Trends
• Risk in Everything, Including Gold
• "Good Time" to Buy Gold
• "Good Time" to Buy Gold
• Who Will Defend the US Dollar?
• US Commercial Real Estate: "A Mess"
• US Commercial Real Estate: "A Mess"
• Fake Money, Real Silver
• Wall Street Gone Wrong
• Dollar Shocker! Not the Worst vs. Gold
• Market Analysis
• Bob Moriarty: Hold on to Gold
• Gold Explained, And Then Some
• It's the Flow, Stupid
• As I’ve been saying . . . [Suicide] Bankers ’caused credit crisis for kicks’
• Gold Forecaster Capital Controls or Chaos?

California Employment and Oil Use Data: Dialing Back a Decade Posted: 23 Oct 2010 07:30 PM PDT Gregor Macdonald submits: California released its latest Labor Market figures Friday. And, I see on the same day, EIA Washington updated detailed energy production and use data for California too, through 2008. First, let’s look at the chart which compares oil production in California to total oil product use, in trillion BTU (click to enlarge). Unsurprisingly, those killer high petrol prices in the first half of 2008 and then the subsequent economic collapse in the second half took more than 200 trillion BTU of total oil product demand off-line. In just one year, California oil product consumption reset itself all the way back, to 2001. | see: California: Oil Production vs Total Oil Product Use in Trillion BTU ’81-’08: Complete Story »

ETFS Rolls Out Physical Precious Metals Basket ETF Posted: 23 Oct 2010 07:19 PM PDT Michael Johnston submits: ETF Securities, the European ETF giant that has now accumulated more than $2 billion in U.S. ETF assets, announced the latest addition to its product line on Friday. The ETFS Physical Precious Metal Basket Shares (GLTR) will be the first U.S.-based, physically backed precious metal basket ETP. GLTR (pronounced “glitter”) will hold gold, silver, platinum and palladium in fixed weights: 0.03 ounces of gold, 1.1 ounces of silver, 0.004 ounces of platinum, and 0.006 ounces of palladium. At current market prices, that means that the exposure will be tilted most heavily towards gold and silver,with smaller allocations to the other two precious metals [see Guide To Platinum ETFs]. Currently two ETPs, including the PowerShares DB Precious Metals Fund (DBP) and iPath Precious Metals ETN (JJP), offer exposure to a precious metals basket consisting of gold and silver. There are multiple options for both physically-backed and futures-based exposure to gold, silver, and platinum. Complete Story »

Dollar Doldrums Posted: 23 Oct 2010 06:11 PM PDT Annaly Salvos submits: We attended a conference this week hosted by Grant’s Interest Rate Observer, which is always a mix of long and short investment ideas and bullish and bearish macroeconomic observations. This one was no different, although if any one theme could be gleaned from it, that theme would be frustration at the way in which policymakers approach the global system of currencies and foreign exchange. The quote that resonated like cold water in the face was by Frank Byrd of Fielder Research & Management, who reminded the assembled, “We have never been here before—a global regime of fiat currencies at zero bound interest rates.” As we listened we referred back to our blog post from last Friday, which examined the insurance value of gold in an inflationary world. The facts on the ground are that the dollar seems to be losing its purchasing power as the market prices in the prospect of large-scale asset purchases by the Federal Reserve. All other things being equal, if the capacity of an economy (like the US) or the supply of a commodity (like gold) doesn’t change, but the number of dollars expands, the prices in that economy or that commodity will rise in dollar terms. Hence the rise in gold, copper, and equities, all of which we usually look at priced in dollars. Below we chart these assets in both dollars and euros during their impressive September/October rallies, as inflation expectations rose and the value of the dollar fell. Complete Story »

Lira On Chile's Triumph, America's Exhaustion Posted: 23 Oct 2010 04:57 PM PDT Submitted by Gonzalo Lira Chile’s Triumph, America’s Exhaustion In Chile, the collective mood is one of hard-earned triumph, after the successful rescue of the 33 miners. There was of course joy and jubilation when the miners were pulled out after their two-month ordeal underground. I wasn’t watching the news at the time, but I knew the precise moment when the first miner was pulled out alive: Passing cars started loudly honking their horns—Tat–tat–ta-ta-tat!! Tat–tat–ta-ta-tat!! Tat–tat–ta-ta-tat!!   But in the nearly two weeks since the rescue, there has been a collective afterglow in Chile: Everyone feels happy. Everyone feels confident. Everyone feels as if any and every problem—no matter how big—can be taken in hand, and solved successfully.   There is none of that feeling in the United States. Americans were glued to their television sets, watching the rescue of the Chilean miners. It was all day, every day—24/7 coverage that got to be a little tedious. But Americans couldn’t seem to get enough of it—on and on and on, the coverage never seemed to stop.   A few Chileans—a small but not insignificant minority—got irritated by the American television coverage: They got irritated by a certain American attitude they sensed in the coverage—an American arrogance.   “It’s like these gringos think that they saved the miners,” a close friend of mine told me here in Santiago. “Like us poor little Chileans couldn’t have rescued the miners on our own—as if we needed the gringos to do it. But we didn’t need the gringos. It was Chilean workers, Chilean engineers, Chilean plans that made the rescue happen—not the gringos.”   “Yeah,” said another friend. “What did the gringos bring, aside from television crews and talking heads? Gringos never respect anyone else’s achievements—they always try to make it about themselves.”   This wasn’t the prevalent thinking in Chile—but it wasn’t an insignificant minority, either. And I couldn’t refute my friends, because they were right—   —but at the same time, I could understand why Americans wanted to latch on to this amazing story:   Americans just want to feel a little bit of triumph, a little bit of joy.   The problem with Americans isn’t that they’re trying to hog the credit: It’s that Americans feel as if their country is a failure—they just want to share in a little bit of that wonderful feeling.   The glow that comes after an undisputed success.   The United States hasn’t felt success in a long, long time—at least a decade. Ever since 9/11, Americans have been living in a state of constant panic—constant fear—an irrational fear egged on by the leadership classes.   This constant state of panic has led Americans to create a police-state, where the police is there not to serve the citizenry, but to keep them in line.   This constant state of panic has led Americans into two pointless, endless wars, where “victory” is impossible—because there’s nothing to be won.   This constant state of panic has led Americans to be afraid of anything and everything—no matter how trivial and innocuous—and turned the American people into a timid, docile, frightened lot.   This constant state of panic has exhausted America.   First 9/11 and the pointless, endless Global War On Terror. Then the Global Financial Crisis in 2008—then more financial bad news—unemployment—downsizing—then another financial crisis with the Mortgage Mess: Constant never-ending crises! Never a moment’s rest!   And throughout these crises, throughout these years of wailing sirens and flashing red lights, there’s the sense—inarticulate, but ever-present—that the American people are being played for fools:   Played for fools by the banksters, with their multi-billion dollar bonuses, paid for courtesy of the U.S. government that bailed them out—and not a one of them going to jail for what they did.   Played for fools by the politicians, who promise hope and change, but deliver more of the same—because they are the same: Peons of the lobbyists, suck-ups to their corporate masters.   Played for fools by the corporations, who sell foods that are unhealthy, plastics that are unhealthy, communications gadgets which are unhealthy—then lie and say, “They’re harmless!”, even as they settle lawsuits whose conditions are that they do not admit to wrongdoing, or accept responsibility.   Played for fools by the security apparatus, growing like a cancer on the body politic, which periodically issues vague and pointless warnings—“Danger! Danger!—A terrorist-threat alert for all of Europe!”—a security apparatus which has become more threatening—even more dangerous—than the terrorism it is supposed to prevent.   Played for fools by the generals, who claim that this new strategy will bring about victory—a strategy which, after tens of thousands of more soldiers, and hundreds of billions of dollars for the military contractors, fails like all the other strategies.   Played for fools by the doctors and hospitals and insurance companies, who don’t so much heal Americans’ injuries and cure their diseases, but rather suck them dry like leeches of old—only they don’t drain them of blood, but of money.   Played for fools by their fellow citizens, as everyone seems hell-bent on trying to screw over his neighbor, whatever the costs, whatever the consequences.   The mantra of the last decade in America has been buy!-buy!-buy your way to happiness!—as if mere things could fill a life with joy and purpose. No wonder something like half the population of the United States is morbidly obese, while the other half smokes as much ganja as they can get their hands on: They eat and get stoned so as to numb the mind, dull the pain—get some rest.   The people of the United States are exhausted. Fatigued. Burned out. No m&cute;s, no m&cute;s, as Roberto Dur&cute;n said: No more. No more.   The trapped Chilean miners—as historical events go—was trivial: It’s nowhere near as important as, say, the upcoming QE2, or the Currency War, or the looming crash in America’s debt.   But for the little bit of time that America’s attention was so single-mindedly focussed on the trapped Chilean miners, the American people could pretend that they were saving the miners.   For a little while, they could pretend that America’s leadership was responsible and serious in the face of a crisis—not incompetent and ridiculous, as they proved to be after Katrina, and during the BP Oil Spill disaster.   They could pretend that America’s engineers and workers solved this difficult problem—with no excuses, no second guesses, no failed plans.   They could pretend that America was basking in the warm comforting glow of confident success.   As they were digging out the trapped miners, a Chilean mining engineer said at one point, “We’re prepared: We’ve got three rescue plans going on at the same time—and each of those efforts has a back-up. And each of those back-ups has a back-up! So one way or another, we’re going to pull our fellow countrymen out of there alive.”   That’s what America needs—that’s what America yearns for: Someone to pull them out of their hole, something that will bring them back up to the surface—alive and beaming with joy, a clenched fist triumphantly punching the black night sky.

The quantitative easing guessing game Posted: 23 Oct 2010 03:12 PM PDT The headline discussion in the financial press of late has been about the recently announced quantitative easing program that the Federal Reserve has said it will undertake in order to further stimulate the economy. Financial commentators have bled their pens dry in speculating what impact the so-called “QE2” will have on stock and commodity prices. The chart featured below shows the CRB commodity price index compared to the S&P 500. Commodity prices, as you can see, have rallied vigorously in the last several weeks and have received the benefit of speculation over quantitative easing, in which the Fed buys up big chunks of government debt. The consensus view is that quantitative easing would most likely put more pressure on the dollar and create another incentive for investors to turn to commodities as a safe haven for a weak dollar. Writing in the latest issue of Barron’s in response to quantitative easing, Anna Raff writes, “The...

New Mortgage Crisis in Iceland: Could U.S. Be Far Behind? Posted: 23 Oct 2010 01:48 PM PDT By Dian L. Chu, Economic Forecasts & Opinions The Icelandic financial crisis has been ongoing since 2008 when all three of the country's major commercial banks collapsed after they failed to refinancing their short-term debt and a run on deposits in the U.K. In July, I talked about how Iceland is totally not a post-crisis miracle as Paul Krugman claims, but just how are things now with Land of Fire and Ice?   Scary Economic Numbers Some of the scary economic figures, courtesy primarily of the plunging Icelandic króna: Inflation has soared 41 percent from January 2007 through September this year (see screen print from Bloomberg) Real disposable incomes slumped 20.3 percent last year Real wages fell 10.1 percent from the beginning of 2007 through August this year 63 percent of the nation's mortgage is underwater 40 percent of homeowners are "technically insolvent" $2 Billion Mortgage Write-off - Who Will Pay? Bloomberg (clip below) reported that Iceland government last week proposed a debt relief bill to write off up to 220 billion króna ($1.99 billion) in mortgage loans. This is after about 8,000 protesters gathered outside parliament demonstrating their anger over rising homeowner insolvencies. ?Most of Iceland’s mortgage debt is inflation-linked.  So, what that means is that the principal has gone up 41% in three years, while everything from wage, income to real purchasing power has gone the opposite direction. This debt relief sounds all nice and dandy, but the problem is a write-down of almost $2 billion is equivalent to about 8 percent of total assets at Iceland’s three biggest banks, their 2009 balance sheets show.  Moreover,  Iceland’s pension funds, which hold most of the bonds behind the nation's mortgage debt, said they will try to block proposals.  If the banks are forced to take a flat write-off, the government most likely will need to cover the loss of pension funds, i.e. taking on more debt.  Iceland, Ireland & Japan - Default Inevitable? Separately, a WSJ article noted that during a speech at the Value Investing Congress in New York, Kyle Bass, head of $900 million hedge fund firm Hayman Advisors, says, Iceland had sovereign debt of roughly 35% of its GDP. However, the country's three largest banks amassed roughly $200 billion of assets -- 10 times the country's GDP.   When the financial crisis hit and Iceland had to bail out its banks, the country's sovereign debt ballooned.  According to Bass, right now, in terms of the size of banking systems relative to GDP. Iceland and Ireland are top of the list, thus post the highest sovereign debt risk.  Ireland's on balance-sheet obligations are about 85% of GDP, but the country's bank bailout program is another 50% of GDP.  Meanwhile, Bass also warned that Japan may default in coming years. He said From 1989 to 2009, government debt grew 137%.  But since Japan's interest rate is close to zero (so is the United States), it will be getting more difficult to pile on debt without incurring higher interest payments, and increasingly will need to go abroad for financing. Bass estimated Japan is currently paying about 9.5 trillion yen in interest. Every one percentage point increase in the interest rate increases Japan's interest payments by 10.5 trillion yen.  Currency Debase - No Solution to Debt Since this season is all about currency war to prop up economies, there's an increasing chorus from Washington to famed economists believing that the U.S. will become more competitive, thus creating more jobs, through massive dollar devaluation (50%) or wage deflation (the two are one of the same, in my opinion). Chart Source: Google Fiance Well, we may take a look at Iceland to test that theory.  Iceland's currency has devalued almost 60% since July 2006 (see chart), wages also fell, and aside from IMF's loan, Iceland's been held together mostly by "technical defaults" and capital control.  While the currency devaluation might have helped the nation's export (while forcing debtors taking haircuts), the domestic inflation, and asset devaluation, most likely will wipe out the entire middle class (hence the "Angry Icelandic 8,000"). United States Not Far Behind? Due to its size, massive resources and different macroeconomic makeup, the United States, although inching closer to Iceland, Ireland and Japan, in terms of debt levels, housing, mortgage and banking bust, has not quite fallen into the similar trap yet. Nevertheless, US Federal debt is around 94.27% of GDP as of October, 2010, up from 57% just ten years ago.  CBO projected U.S. debt would reach 100% of GDP within a decade (the next five years seems more likely the way it's going). Meanwhile, by observing crisis unravel in countries with fiscal situations not that different from the U.S. hopefully would serve as a warning and prophecy of things to come.  Whether the prophecy will be fulfilled is yet to be seen. Dian L. Chu, Oct. 23, 2010

Analysis: G20 Divisions On Display As Imbalance Plan Fails Posted: 23 Oct 2010 10:15 AM PDT GYEONGJU, South Korea (MNI) - The meeting of Group of 20 finance ministers and central bank chiefs ended here Saturday amid claims that real progress has been made on addressing the global imbalances and the spats over currency interventions that have dogged the global economic recovery. As expected, the G20's final communique did pledge to move towards market-determined exchange rates, to avoid competitive devaluations, and to use "the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels." But the group failed to agree on any concrete plan for reducing global imbalances and prevent growing unilateralism from harming the world economic recovery. A U.S. proposal to set numerical limits on current account balances was shunted to the International Monetary Fund for further study, leaving the G20 delegates saying that "indicative guidelines to be agreed" would provide a framework for addressing global imbalances at some indeterminant point in the future. The woolly nature of the communique, and the at times confrontational briefings held by G20 delegates following its publication, left the impression that the world's major advanced and emerging market economies failed to make any real progress in arriving at an agreement that will meaningfully tackle imbalances. Financial Stability Board Chairman Mario Draghi said that U.S. Treasury Secretary Timothy Geithner's proposal, which would seek to limit current account surpluses and deficits to 4% of GDP by 2015, is "on the table" and deserves "close attention, consideration and discussion." Instead of that proposal, the final communique saw the G20 asking the IMF to study the causes of large imbalances and the range of policies needed to correct them. In any case, the "indicative guidelines" won't be ready by the time G20 leaders meet for the summit meeting in Seoul in November, Japanese Finance Minister Yoshihiko Noda said, without indicating when they would be ready. While it all might have sounded like passing of the buck, most officials here have not hesitated to talk up the level of cooperation and agreement reached during these recent days of talks. But German Economic Minister Rainer Bruederle, in the best blunt German fashion, provided some corrective to the very public cordiality on display here when he lashed out Saturday at both the proposed fresh round of quantitative easing by the U.S. Federal Reserve and Geithner imbalance proposal. While Fed Chairman Ben Bernanke has said that such a move would be motivated by fears of a fresh U.S. recession, "I have tried to make clear in my contribution that I think this is the wrong way," Bruederle told reporters. Moreover, the Fed's policy belied the U.S. charge that some emerging countries were manipulating their currencies, he argued. "An excessive increase in (the quantity of) money to me represents indirect manipulation" of the exchange rate toward a weaker dollar, he charged, arguing that major emerging countries shared this view. "This was also the criticism of the BRIC states (Brazil, Russia, India and China), he continued. "They say that (the United States is) also manipulating exchange rates because (it is) pumping so much liquidity (into the markets)." Bruederle also said that Geithner's proposal to cut imbalances smacked of "plaed economic thinking." The IMF is forecasting Germany's current account surplus to rise to 6.055% of GDP this year from 4.890% last year before shrinking to 3.884% by 2015. Complete Story »

Germany Calls Out Geithner's Hypocrisy, Says Money Printing Is FX Intervention Posted: 23 Oct 2010 08:23 AM PDT After months of US bitching and moaning about China's so called unfair exchange policies, when it is the US Fed which is the biggest currency manipulator in the world by orders of magnitude, one country finally had the guts to stand up and call out Tim Geithner on his endless bullshit. At the G-20 meeting, per Bloomberg, German Economic Minister Rainer Bruederle said that the Fed's "push toward easier monetary policy is the “wrong way” to stimulate growth and may amount to a manipulation of the dollar. Excessive, permanent money creation in my opinion is an indirect manipulation of an exchange rate." The fact that China was smart enough to peg its currency to the most rapidly devaluing currency in the world is a different story altogether, and merely confirms that they are leap and bounds more sophisticated in their monetary policy than anyone gives them credit for. If Geithner wants to prevent a relative depreciation of the Yuan versus all other currencies in the world (especially the EUR, against which it continues to be in freefall), the answer is simple: stop bloody printing! And with Tim Geithner present, could the G20 meeting possibly not end up being a total farce? Of course not: U.S. Treasury Secretary Timothy F. Geithner dismissed prospects of mounting criticism of the Fed’s approach in his press conference after the G-20 meeting yesterday. When asked whether he expected Germany’s criticisms to gain steam, he replied: “I do not.” In the future, when asked if he ever had problems with being called an idiot and a moron by virtually everyone, Tim Geithner will have the same reply. And the stand cup comedy continued. The Treasury chief declined to comment directly on the Fed’s policy, while also saying that major economies like the U.S. need to make growth a top priority. One of the global imbalances is the disparity between rapidly expanding emerging- market economies and too-slow growth in developed nations, he said. “We are going to continue to try to strengthen the recovery under way so we can dig out of this as quickly as we can,” Geithner said. In other words, the Fed will celebrate the recovery "under way" by printing another $1.5 trillion in money. It has gotten so bad that Germany is now directly siding with Brazil which spat in the face of America and decided to not even show up, demonstrating just what it thinks of Geithner's endless hypocrisy. Low interest rates and weak recoveries in industrialized economies such as the U.S. have forced investors to flood emerging markets with capital, providing resources for growth yet also threatening to spur inflation, asset bubbles and over- valued exchange rates. Such concerns have prompted economies from South Korea to Brazil to take steps to slow the inflow of speculative cash. “I’m not a friend of this but I can understand” why Brazil introduced capital controls, Bruederle said. And just so there is no confusion as to whether Germany's critcisms will gain steam, below is Zero Hedge's projection of what the Fed's balance sheet will soon look like.

Silver Shortage Looms: Rick Rule Posted: 23 Oct 2010 06:57 AM PDT "The U.S. Mint sells another 350,000 silver eagles. FDIC asked to put Bank of America into receivership. Where can we find 20,000 tonnes of gold? The monetary breakdown of the west. From global depression to global governance... and much more. " Yesterday in Gold and Silver The gold price was pretty flat during Far East trading on Friday. This all changed the moment that London opened for business at 8:00 a.m. local time... which is 3:00 a.m. in New York... as the not-for-profit seller[s] showed up with a vengeance. Within an hour the gold price was at its low of the day... which was around $1,314 spot. I filed my Thursday commentary at 5:00 a.m. Eastern time yesterday morning... and as I indicated in my closing paragraph, I feared the worst when New York opened. Nothing of the sort happened. Gold popped ten bucks at the Comex open, but got sold off beginning at 9:00 a.m. before resuming the quiet upward trend that had started earlier in London. Gold clos...

CFTC Weekly Options Update: Total Treasury Spec Longs Surge By 40% To 2010 Record, Dollar Inflection Point Reached? Posted: 23 Oct 2010 06:43 AM PDT This week's CFTC Commitment of Traders confirms that market momentum schizophrenia is persisting: in the past week Treasury net non-commercial spec long positions across the curve (2s, 5s and 10s) surged from 221k to 311k, a 41% increase. In other words the momo crowd is betting the farm that treasury prices not only won't stop going higher, but that the entire curve with be transposed lower with a slight preference for the belly (as Morgan Stanley now expects). The Combined total is more than half a million contracts compared to early April when the 10 year was threatening to break out of the 4% range (dashed line Chart 1). Yet this is in contradiction to the options activity within selected commodities, which after taking a slight breathers have continued to see increasing spec demand to the upside (Chart 2). Lastly, and probably most importantly, looking at currencies shows that the unprecedented surge in bearish bets in the dollar may be over: for the first time since the end of August, dollar net spec bets have actually gotten marginally bullish. Treasury CFTC COT: Commodity CFTC COT: Currency CFTC COT: Additionally, courtesy of Libanman futures, here are the traditional and financial CFTC reports in visual format:

More evidence of ignorance of gold Posted: 23 Oct 2010 05:57 AM PDT Nobody knew what it was at first... Manitoba couple accidentally buys coffee with $100 gold coin But this loonie story has a happy ending By Geoff Kirbyson, Winnipeg Free Press October 23, 2010 9:36 AM Kristine Friesen accidentally paid for her coffee with a gold coin. Kristine Friesen accidentally paid for her coffee with a gold coin. Photograph by: Bill Redekop, Winnipeg Free Press WINNIPEG — Kristine Friesen may have bought the most expensive cup of coffee of all time. The Winnipeg resident and her husband thought nothing of their visit to a Tim Hortons location on Wednesday. She ordered tea and a bagel while Harry ordered coffee. The bill came to about $3, so Kristine reached into her purse, pulled out a toonie and a loonie and they sat down to enjoy their beverages. Kristine went to bed early that night but when she got up the next morning, she found out Harry had been up late looking high and low for a gold coin he had left with his change on the coffee table the day before. After retracing their steps, she realized with some horror that she had likely used the $100 gold coin at Tim Hortons. "I thought the loonie looked kind of shiny but I didn't really think about it. It stuck in my mind, though," she said. The wayward coin nearly made it into general circulation as change for a subsequent customer but an alert cashier noticed it and brought it back to Greg Mikolajek, owner of the store. "She said, 'I think I got ripped off,'" he said. Mikolajek, a novice coin collector, regularly rounds up the non-Canadian money the shop brings in and buys it for himself. He uses the U.S. change on trips south of the border and he puts coins from other countries, such as Mexico, Cuba or even Europe, in a box. At first, he thought the coin was a special-edition loonie, like the one celebrating the Saskatchewan Roughriders of the Canadian Football League. On closer inspection, he knew that couldn't be the case because the coin was minted in 1976. The Royal Canadian Mint didn't start producing loonies until 1987. "It's the exact same size of a loonie. You'd never know the difference, it's just a little heavier," he said. Mikolajek immediately thought about getting it back into the hands of the owner but realized that would be impossible unless somebody came forward on their own. "If I said we have a lost $100 coin, we'd have 3,000 people here to collect it," he said. Abe Nuss, manager of A.B. Coins & Collectables, said from the description of the coin, he believes it's worth about $350. He said the Mint produced two gold $100 coins in 1976, a 14-ounce version that's about the size of a loonie and a 22-ounce piece that's a little bigger and thicker than a nickel. The latter is worth about $700. The Mint continues to make the $100-gold coin to this day, although the gold content is lower than it used to be, he said. On Thursday, one of Mikolajek's employees came into the back of the store and asked if anybody had turned in a $100 coin. Mikolajek went to the front counter and found Harry Friesen brandishing a small protective case on which the front plastic piece was compressed with an outline of a coin. "It was the Cinderella story, the slipper fit," Mikolajek said. "I told him I had it at home but if he came back [Friday] he'd be a very happy guy." Harry was ecstatic at the news and happy to have the coin back. He doesn't want to take the chance of it getting mixed up with regular change again so he's going to put it in a safety deposit box. But the gold coin wasn't the only legal tender to change hands on Friday. "I said to Harry, 'Don't forget, you still owe them a loonie," Kristine said.

Guest Post: U.S. Financial Markets: The Well Has Been Poisoned (Anger of the Honest Part II) Posted: 23 Oct 2010 05:56 AM PDT Submitted by Charles Hugh Smith from Of Two Minds U.S. Financial Markets: The Well Has Been Poisoned (Anger of the Honest Part II) When financial markets have become riddled with fraud, embezzlement and corruption that goes unpunished, then institutional players will avoid that market as crooked: the well has been poisoned. The full consequences of what I termed The Rot Within: Our Culture of Financial Fraud and the Anger of the Honest (October 15, 2010) are now unfolding: the well has been poisoned. One of my most astute correspondents made a critical observation that I've seen nowhere else: once a market has been poisoned by fraud which goes unpunished, then institutional players will avoid that market as untrustworthy. Without institutional trust and participation, the market then withers on the vine-- exactly what has happened to the U.S. mortgage securities market. The market for mortgage-backed securities has vanished, except for one player: the Federal Reserve, which has bought a staggering $1.2 trillion in the past 18 months to create the facsimile of an active market. The well has been poisoned. The only mortgages being traded are those 100% guaranteed by the U.S. government: in effect, the risks intrinsic to a corrupted market have been shifted to the taxpayers, while the criminals who profited from the fraud and embezzlement got away scot-free. Here are the correspondent's comments: RE: Will bankers Go to Jail for Foreclosuregate?: When I was in the Wall Street game, our small-cap fund was for a time in the top 5% of performers. I got bored and left, which is a longer story. Anyway, I observed a phenomenon about fraud. First it happened. Then it was widely publicized. Then it was prosecuted, and some big names were jailed. At that point, it was safe to go back into the water. This happened in a few industries prior to the mid-1990s, at which point basic law enforcement was neutered and there were no more fraud prosecutions that mattered. I have always thought that the lack of fraud prosecutions for Internet/telecom fraud was a significant reason why the NASDAQ has never made a significant recovery to anything close to its peak reached in March 2000. Watch carefully on the foreclosure frauds. If real jail terms are handed out to some (doesn't need to be all) big players, that will be a green flag. The public at large won't see it or believe it, but the professionals will. I am not predicting that this will happen. In fact, I'm quite skeptical that it will. However, any intelligent skeptic considers all the possibilities. This is why no institutional investor will touch private-market mortgage securities with a 10-foot pole. The U.S. government and the Fed had a stark choice: either impose the rule of law and indict and convict hundreds, if not thousands, of people who perpetrated and profited from the systemic fraud and embezzlement at the heart of the mortgage and mortgage-securities industries, or socialize the corrupted, poisoned markets and use taxpayer funds to prop up the wizened shell of a stripmined market and reward the criminals with freedom. They chose to reward the criminals and prop up a simulacrum market with only one buyer: the Federal Reserve. You can go to the the Fed's balance sheet and see the $1.2 trillion in mortgage-backed securities it owns. There is no effort to hide the brazen socialization of what once was a private-sector, free market. When the well has been poisoned, the only players dumb enough to drink from it are the taxpayers, who have no choice as the politico toadies of the investment banking/financial Power Elites have funneled some $13 trillion in cash, backstops and guarantees into their "partners" who fund their campaigns and write the laws via their lobbyist proxies. The Fed isn't dumb--it's desperate. The markets, systemically riddled with collusion, cronyism, fraud, embezzlement, misrepresentation and outright lies, have no participants except Central State proxies and "marks" who sadly still believe the ceaseless propaganda about "rising corporate profits," "recovery" and "a free-market economy." Hahahahaha--free market! Please don't make me laugh that hard, I might hurt myself. If you are so confident in the "transparency" and trustworthiness of the mortgage securities market, please tell us how many private institutional investors are buying mortgage securities which aren't 100% guaranteed by the Central State. The same distrust has poisoned U.S. stock markets. The high keening cry to "get into the market while stocks are cheap" which has been spewed daily for months on end on network TV and other channels of raw propaganda has been ignored by the "retail investor," a.k.a. the top 20% of Americans who have financial wealth to preserve and invest. For 24 straight weeks, retail investors have been pulling tens of billions of dollars out of U.S. mutual funds and plowing hundreds of billions into low-yield Treasury bonds. Why? Because they sense the stock market is hopelessly, deeply corrupt and by comparison Treasuries are trustworthy. You won't make a lot of yield in Treasuries, thanks to the Fed's zero-interest rate policy (ZIRP) which is designed to drive money into risky assets, but then you won't lose 40% like you did in 2008-09 or 2000-2002 in the stock market. We can also see how insiders are responding to the knowledge that the well has been poisoned: they're selling 500 shares for every share they buy. This unprecedented cascade of insider selling has been noted elsewhere many times, as has the declining expectations for the "recovery" of U.S. CEOs. Those who know the most are selling their shares as fast as they legally can, and are publicly expressing their lack of faith in the tricked-up "recovery." The U.S. financial markets have been poisoned, with long-term negative consequences. Only crooks, fraudsters and "marks" (those who still believe the propaganda about the "recovery" and "stocks are cheap" poison) will be left in a stock market propped up by the same socialization of risk which keeps the flimsy facade of a mortgage market from crumbling. High-frequency trading machines create the illusion of a market, and State intervention via proxies and other corrupt games provides the liquidity needed to fund the facsimile of a "rising market" and a "recovery" in the U.S. economy. But the public isn't buying the fraud any longer; they finally "get it": The well has been poisoned and only a fool drinks from a poisoned well. This is why we can safely anticipate a hollowed-out stock market which trades at a steep discount to its present propped-up levels in the years ahead--until the crooked players are indicted and the financial markets thoroughly cleaned. That will take political will which is completely lacking in the Demopublican-Republicrat status quo. For more on this, please read: The Loss of Trust and the Great Unraveling To Come (October 18, 2010) The Normalization of Sociopathology in America (October 16, 2010) The Rot Within: Our Culture of Financial Fraud and the Anger of the Honest (October 15, 2010) The Coming Collapse of the Real Estate Market (October 14, 2010) Runaway Feedback Loops, Wealth Concentration and Gaming-The-System (October 13, 2010) Bernanke's QE2 Heading for the Shoals (October 11, 2010) Look Out Below (I've got a bad feeling about this) (October 8, 2010) Special podcast: Steve over at Two Beers with Steve was kind enough to let me ramble semi-coherently for an hour; we had a great time and I think I should have interviewed him.... Check it out if you have an hour of sitting in traffic to invest: Two Beers with Steve podcast.

Get Ready For The Demise Of The U.S. Dollar (eventually) Posted: 23 Oct 2010 04:15 AM PDT This is a must-watch video from the National Inflation Association.  For quite some time I have been offering up the view that China is going to eventually roll out a gold/silver-backed currency that will replace the dollar as the global reserve currency.  I think people must think that I'm nuts (maybe I am, to an extent lol).  But here's another analyst who sees it the same way as I: Ultimately, I believe that once China has accumulated enough gold and silver, they will roll out a new currency backed by their bullion reserves.  At the same time, they will have to concomitantly revalue the price of gold and silver both upward by a substantial amount in order to give gold/silver the value that would back the representative paper currency issued against that bullion AND to imbue a great enough value to back the amount of currency that will have to be issued in order to create efficient "fungibility" for the size of the global economy. This is where those who are accumulating bullion now will put themselves in a superior wealth position relative to everyone who disbelieves the true nature of gold and silver (even though 90% of 5000 years of human history is the relevant data point to understand the wealth-nature of gold/silver). I was in a meeting a couple weeks ago with a potential client and I offered up this view of the "end game."  He understands the need to start accumulating gold/silver and the value of also investing in mining stocks to make a "leveraged" play on the metals.  But he really didn't think the dollar would be displaced.  That right there is the psychological power and danger of patriotism. "Dissent is the highest form of patriotism" - Thomas Jefferson "Patriotism in its simplest, clearest and most indubitable signification is nothing else but a means of obtaining for the rulers their ambitions and covetous desires, and for the ruled the abdication of human dignity, reason, conscience, and a slavish enthrallment to those in power." Leo Toystoy

G20 forswears currency, trade wars but sniping starts right up again Posted: 23 Oct 2010 03:40 AM PDT G20 Inks Pact to Avert Trade War, Seals IMF Power Shift By Fiona Shaikh and Langi Chiang Reuters Saturday, October 23, 2010 http://www.reuters.com/article/idUSTRE69K0Q720101023 GYEONGJU, South Korea -- Group of 20 finance leaders struck a deal today to refrain from competitive currency devaluations, although they failed to agree firmer language that might have shored up the U.S. dollar. At a meeting in South Korea, the growing clout of the developing world was recognized in a surprise deal to give them a bigger voice in the International Monetary Fund, which was charged with policing global stability. Efforts by the United States to limit current account balances to 4 percent of gross domestic product, a measure aimed squarely at China's surplus, was shot down by a range of countries. ...Dispatch continues below ... ADVERTISEMENT Prophecy Resource Goes Into Production at Ulaan Ovoo Coal Mine in Mongolia A commission appointed by Mongolia's Ministry of Mineral Resources and Energy has conducted the final permit inspection at Prophecy Resource Corp.'s Ulaan Ovoo mine site and has instructed the company to begin coal production. Prophecy Resource (TSX.V: PCY) has begun production of its first 10,000 tonnes of coal as a trial run of supply to be taken by rail to electric power stations in Darkhan and Erdenet, Mongolia's second and third largest cities after the capital, Ulaanbaatar. The company is the second-ever Canadian mining company to get a permit to mine in Mongolia and start production there. For the company's complete announcement, please visit: http://www.prophecyresource.com/news_2010_oct14.php The 20 members pledged in a communique to "refrain from competitive devaluations" of their currencies, developed economies vowed to cut their budget deficits over time, and all to take action to reduce current account imbalances. "If the world is going to be able to grow at a strong, sustainable pace in the future ... then we need to work to achieve more balance in the pattern of global growth as we recover from the crisis," Treasury Secretary Timothy Geithner said. U.S. proposals to rein in current account imbalances came as Beijing has amassed $2.65 trillion in official currency reserves as a consequence of its huge trade surpluses, and prompted the U.S. House of Representatives to pass a bill threatening retaliation unless China lets its currency off the leash. Chinese officials made no public comment on the dispute, but a G20 source said Beijing was opposed to any statement that explicitly bound countries to limits on current account balances or any other form of rules on currency policy. Strains at the meeting that saw Japan and India shoot down the U.S. proposals continued after it had finished. Germany said there had been criticism of the U.S. policy of flooding the banking system with money that has spilled over to emerging economies such as Brazil, causing asset price bubbles. "I tried to make clear in my contribution to the discussion that I regard that (easing) as the wrong way to go," said German Economy Minister Rainer Bruederle. "An excessive, permanent increase in money (supply) is, in my view, an indirect manipulation of the (foreign exchange) rate." Host South Korea, however, put a more optimistic spin on the outcome of the meetings saying the G20 had helped to remove uncertainty in global markets. "This will put an end to the controversy over foreign exchange rates," said Finance Minister Yoon Jeung-hyun. The IMF deal was hailed by fund Managing Director Dominique Strauss-Kahn as a "historical" moment that will see Europeans give up two seats on its 24-strong board to developing countries and transfer an extra 6 percent of overall votes to them. "This makes for the biggest reform ever in the governance of the institution," Strauss-Kahn, who heads the 187 country body, told reporters. That deal will make China the third most powerful member of the IMF, up from six as it overtakes traditional powerhouses Germany, France, and Britain. India moves to eighth place from 11th. "Our complaint was that the quota share should reflect ground reality and economic strengths currently, it would have eroded the credibility of the institution. That has now been corrected," Indian Finance Minister Pranab Mukherjee said. The G20 agreed a year ago to shift at least 5 percent of voting rights to developing countries such as India and Brazil, whose clout within the Fund has not kept pace with their emergence as major engines of global growth. * * * Join GATA here: New Orleans Investment Conference Wednesday-Saturday, October 27-30, 2010 Hilton New Orleans Riverside Hotel http://www.neworleansconference.com/redirect.php?page=index.html&source_... * * * Support GATA by purchasing a colorful GATA T-shirt: http://gata.org/tshirts Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: http://www.goldrush21.com/ * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16

Precious metals weekly wrapup at King World News Posted: 23 Oct 2010 03:31 AM PDT 11:30a Saturday, October 23, 2010 Dear Friend of GATA and Gold (and Silver) The weekly precious metals market wrapup at King World News finds Bill Haynes, proprietor of CMI Gold & Silver, reporting that retail buying is down, which he finds bullish; Dan Norcini of JSMineSet.com providing technical chart analysis; and the Got Gold Report's Gene Arensberg commenting that the big commercial shorts may be covering rather than adding to their short positions. The program is about 20 minutes long and you can listen to it here: http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/10/23_... Or try this abbreviated link: http://tinyurl.com/392xwkn CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc. ADVERTISEMENT Prophecy Resource Goes Into Production at Ulaan Ovoo Coal Mine in Mongolia A commission appointed by Mongolia's Ministry of Mineral Resources and Energy has conducted the final permit inspection at Prophecy Resource Corp.'s Ulaan Ovoo mine site and has instructed the company to begin coal production. Prophecy Resource (TSX.V: PCY) has begun production of its first 10,000 tonnes of coal as a trial run of supply to be taken by rail to electric power stations in Darkhan and Erdenet, Mongolia's second and third largest cities after the capital, Ulaanbaatar. The company is the second-ever Canadian mining company to get a permit to mine in Mongolia and start production there. For the company's complete announcement, please visit: http://www.prophecyresource.com/news_2010_oct14.php Join GATA here: New Orleans Investment Conference Wednesday-Saturday, October 27-30, 2010 Hilton New Orleans Riverside Hotel http://www.neworleansconference.com/redirect.php?page=index.html&source_... * * * Support GATA by purchasing a colorful GATA T-shirt: http://gata.org/tshirts Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: http://www.goldrush21.com/ * * * Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: http://www.gata.org To contribute to GATA, please visit: http://www.gata.org/node/16

Guest Post: Depression Within A Depression Posted: 23 Oct 2010 03:22 AM PDT Submitted by Jim Quinn of the Burning Platform Depression Within a Depression In recent months, worshippers at the altar of Keynes have been hyperventilating over the possibility Congress will run a deficit of “only” $1.5 trillion in 2010. They have issued dire proclamations about a replay of the 1937-1938 Depression within the Great Depression. White House favorite and #1 Keynesian on the planet, Paul Krugman, declared that not borrowing an additional $100 billion to hand out to the unemployed for another 99 weeks would surely plunge the country into recession again. “Suddenly, creating jobs is out, inflicting pain is in. Condemning deficits and refusing to help a still-struggling economy has become the new fashion everywhere, including the United States, where 52 senators voted against extending aid to the unemployed despite the highest rate of long-term joblessness since the 1930s. Many economists, myself included, regard this turn to austerity as a huge mistake. It raises memories of 1937, when F.D.R.’s premature attempt to balance the budget helped plunge a recovering economy back into severe recession.” – Paul Krugman in NYT      So did Roosevelt’s attempt to balance the budget in 1937 cause the second major downturn in 1938? I’m a trusting soul, but I prefer to verify what is being peddled to me by any economist, especially Paul Krugman.  Ghost of Keynes Past Today’s Keynesian economists have convinced boobus Americanus that the Great Depression was caused by the Federal Reserve being too tight with monetary policy and the Hoover administration not providing enough fiscal stimulus. Ben Bernanke and Barack Obama used this line of reasoning to ram through an $850 billion pork-laden stimulus package, as well as the purchase of $1.2 trillion of toxic mortgages by the Federal Reserve. The only trouble is that this storyline is a complete sham. The fact that colossal stimulus spending, zero interest rates, the purchase of over a trillion in toxic assets by the Fed, and the loosest monetary policy in history have done absolutely nothing to revitalize the economy, has proven that Keynesian policies have been a wretched failure. This is not a surprise to Austrian school economists. Keynesian policies failed during the Great Depression, and they are failing today. An economic catastrophe caused by loose monetary policies, crushing levels of debt, and appalling lending practices cannot be solved by looser monetary policies, issuance of twice as much debt, and government commanding banks (or, in the case of Fannie and Freddie, “commandeering”)  to make more bad loans. Ludwig von Mises described what happened in the 1920s and 1930s. His explanation accurately illustrates the situation in America today. “There is no means of avoiding the final collapse of a boom brought on by credit and fiat monetary expansion. The only question is whether the crisis should come sooner in the form of a recession or later as a final and total catastrophe of depression as the currency systems crumble.” The Roaring Twenties They don’t call the 1920s roaring because money wasn’t flowing freely and consumers were practicing frugality. The newly created Federal Reserve expanded credit by setting below-market interest rates and low reserve requirements that favored the big Wall Street banks. The Federal Reserve increased the money supply by 60% during the period following the recession of 1921. By the latter part of the decade, “buying on margin” entered the American vocabulary as more and more Americans overextended themselves to speculate on the soaring stock market. The 1920s marked the beginning of mass production and the emergence of consumerism in America, with automobiles a prominent symbol of the latter. In 1919, there were just 6.7 million cars on American roads. By 1929, the number had grown to more than 27 million cars, or nearly one car for every household. During this period banks offered the country’s first home mortgages and manufacturers of everything – from cars to irons – allowed consumers to pay “on time.” Installment credit soared during the 1920s. About 60% of all furniture and 75% of all radios were purchased on installment plans. Thrift and saving were replaced in the new consumer society by spending and borrowing. Encouraging the spending, the three Republican administrations of the 1920s practiced laissez-faire economics, starting by cutting top tax rates from 77% to 25% by 1925. Non-intervention into business and banking became government policy. These policies led to overconfidence on the part of investors and a classic credit-induced speculative boom. Gambling in the markets by the wealthy increased. While the rich got richer, millions of Americans lived below the household poverty line of $2,000 per year. The days of wine and roses came to an abrupt end in October 1929, with the Great Stock Market Crash. Between 1929 and 1932, the market fell 89% from its high. The Keynesian storyline is that Herbert Hoover’s administration did nothing to try and revive the economy. It took Franklin Delano Roosevelt and his New Deal Keynesian policies to save the country. It’s a nice story, but completely false. Between 1929 and 1933, when Roosevelt came to power, the Hoover administration increased real per-capita federal expenditures by 88%, not exactly austere. Excessive Consumer Spending When examining the BEA chart of GDP from 1929 to 1939, some fascinating similarities with today’s economy leap out. In 1929, consumer expenditures accounted for 72.3% of GDP, confirming that the much-commented-upon American consumerism is not a modern development. In fact, consumer spending peaked at 81% of GDP in 1932 and remained above 70% during the entire depression. By 1950 consumer expenditures had subsided to 64% of GDP. In 1960, they had fallen to 63% and edged up to 64% by 1970, where they remained until 1980. By 1990 they had ticked up to 66% and by 2000 had reached 68%. The modern-day climax appeared to many to have been reached in 2007 at 70% of GDP. But in a replay of the New Deal playbook, where much of the consumerism was funded by make-work projects and federal transfer payments, the federal government has thrown billions of dollars at consumers to buy houses, cars, and appliances. Consumer expenditures as a percentage of GDP actually rose to 71% in 2009. It should be readily apparent that until consumer expenditures are narrowed to a level that leads to a sustainable balanced economy, the current depression will continue indefinitely. Bureau of Economic Analysis National Income and Product Accounts Table Table 1.1.6A. Real Gross Domestic Product, Chained (1937) Dollars [Billions of chained (1937) dollars]    1929   1930   1931   1932   1933   1934   1935   1936   1937   1938   1939  Gross domestic product 87.3 79.8 74.6 64.9 64.0 71.0 77.3 87.4 91.9 88.7 95.9 Personal consumption expenditures 63.1 59.7 57.8 52.6 51.5 55.1 58.5 64.5 66.8 65.8 69.4 Gross private domestic investment 12.2 8.1 5.1 1.5 2.3 4.1 7.6 9.7 12.2 8.0 10.3 Net exports of goods and services 0.8 0.4 0.2 0.0 -0.1 0.2 -0.5 -0.3 0.1 0.9 1.0 Government consumption expenditures and gross investment 9.2 10.2 10.6 10.2 9.9 11.1 11.5 13.4 12.8 13.8 15.0 The Depression Within the Depression The Great Depression lasted from 1929 until 1940. What is not well known is that GDP was at the same level in 1936 as it had been in 1929. In no small part because GDP soared by 37% between 1933 and 1936. The unemployment rate in 1929 was 5%. In 1936, even after GDP had recovered to pre-depression levels, the unemployment rate was still 15%. It spiked back to 18% in 1938 and stayed above 15% until World War II. Tellingly, in 1936, private domestic investment was 21% below the level of 1929. By contrast, government expenditures surged by 46% between 1929 and 1936. With the government creating agencies and hiring people into make-work projects, private industry was crowded out. The extensive governmental economic planning and intervention that began during the Hoover administration was expanded significantly under Roosevelt. The bolstering of wage rates and prices, expansion of credit, propping up of weak firms, and increased government spending on public works prolonged the Great Depression. The evidence strongly contradicts the notion promoted by Krugman and other Keynesian worshippers that the supposed 1937-38 Depression within the Great Depression was caused by Roosevelt becoming a believer in austerity. In fact, GDP only dropped by 3.5% in 1938 and rebounded by 8.1% in 1939. What actually collapsed in 1938 was private investment, which fell 34%. By contrast, government spending declined by only 4.5% in 1938, confirming that Roosevelt did not slash spending. To the extent that he eased up on the accelerator, it was by cutting back on jobs programs like those provided by the Works Progress Administration and the Public Works Administration. The reason private investment collapsed in 1938 was Roosevelt’s anti-business crusade. He denounced big business as the cause of the depression. In March 1938, FDR appointed Yale University law professor Thurman Arnold to head the antitrust division of the Justice Department. Arnold soon hired some 300 lawyers to file antitrust lawsuits against businesses. Arnold launched cases against entire industries, with lawsuits against the milk, oil, tobacco, shoe machinery, tires, fertilizer, railroad, pharmaceuticals, school supplies, billboards, fire insurance, liquor, typewriter, and movie industries. The Greater Depression and Excessive Debt Some Conclusions The mainstream media’s popular narrative about the causes and cure for the Great Depression invariably start with the storyline that the stock market crash caused the Great Depression. Herbert Hoover purportedly refused to spend government money in an effort to reinvigorate the economy. Franklin Delano Roosevelt’s New Deal government spending programs allegedly saved America. This storyline is a big lie. The Great Depression was caused by Federal Reserve expansion of the money supply in the 1920s that led to an unsustainable credit-driven boom. When the Federal Reserve belatedly tightened in 1928, it was too late to avoid financial collapse. According to Murray Rothbard, in his book America’s Great Depression, the artificial interference in the economy was a disaster prior to the depression, and government efforts to prop up the economy after the crash of 1929 only made things worse. Government intervention delayed the market’s adjustment and made the road to complete recovery more difficult. The parallels with today are uncanny. Alan Greenspan expanded the money supply after the dot-com bust, dropped interest rates to 1%, encouraged a credit-driven boom, and created a gigantic housing bubble. By the time the Fed realized they had created a bubble, it was too late. The government response to the 2008 financial collapse has been to expand the money supply, reduce interest rates to 0%, borrow and spend $850 billion on useless make-work pork projects, encourage spending by consumers on cars and appliances, and artificially prop up housing through tax credits and anti-foreclosure programs. The National Debt has been driven higher by $2.7 trillion in the last 18 months. The government has sustained insolvent Wall Street banks with $700 billion of taxpayer funds and continues to waste taxpayer money on dreadfully run companies like Fannie Mae, Freddie Mac, General Motors, and Chrysler. The government is prolonging the agony by not allowing the real economy to bottom and begin a sound recovery based on savings, investment, and sustainable fiscal policies. President Obama continues to scorn business by creating more burdensome healthcare, financial, and energy regulations. Today’s politicians and monetary authorities have learned the wrong lessons from the Great Depression. The result will be a second, Greater Depression and more pain for the middle class. The investment implications of government stimulus programs are further debasement of the currency and ultimately inflation and surging interest rates. Owning precious metals and mining stocks, and shorting U.S. Treasuries will pay off over the next few years.  Regular Casey Report contributor James Quinn is the head of strategic planning for one of the world’s most prestigious business schools and the host of TheBurningPlatform.com blog.

Building Your Own Convergence Fortune Posted: 23 Oct 2010 03:00 AM PDT They call it the "Convergence." Sometimes, when researchers get particularly excited, they refer to it as "The Great Convergence." Some think it's still a few years away. Others are convinced it's already happened. So what is it – besides an incredible wealth opportunity for forward-thinkers like you? The Convergence is the moment when hard scientific research, manufacturing, communications, medicine – just pick a list of industries – all merge together. I'm talking about nano-engineered assembly lines. Cell phones, for example, that take your blood pressure and can email reports to your physician. Profiting from companies involved in the Convergence is the wealth trend of the next decade. You see, breakthroughs are compounding now. Wealth is piling up faster and faster. Here's just one example… This past week, the Nobel Prize in physics for 2010 was awarded to Andre Geim and Konstantin Novoselov for the discovery of graphene. Geim and Novoselov were the first to successfully extract graphene from bulk graphite in 2004 using a sophisticated method referred to as the "Scotch tape technique." Where others had failed to get single graphene sheets with more advanced methods, these scientists found success with Scotch tape. Andre Geim was previously famous for levitating a frog using a strong magnetic field, which won him the Ig Nobel Prize in 2000. The results were published in the European Journal of Physics in a paper titled "Of Flying Frogs and Levitrons." The discovery of graphene opens doors to revolutionary new materials. Graphene is a sheet of chemically attached carbon atoms a single atom thick. Since carbon can form multiple simultaneous chemical bonds, each carbon atom bonds to three others. The result is a sheet 1 millionth of a millimeter thick in which the hexagonal structure of the carbon bonds takes on a honeycomb appearance with an atom at each vertex. Along with carbon nanotubes, graphene is the strongest substance ever tested. It could be used to manufacture strong, lightweight products. Think of car bodies or aircraft fuselages. Since carbon is so abundant, the raw materials would be very inexpensive. Graphene also has unique, useful electrical properties. If commercial graphene manufacturing could be perfected, it has been theorized that graphene could be used to construct many of the components in integrated circuits. In the future, you could be tapping on a smart phone with a graphene touch-screen or reading a book on a graphene monitor. To give an example, Georgia Institute of Technology researchers have invented a graphene manufacturing technique for nanometer-scale electronics. They found that by etching patterns into silicon carbide, carbon atoms are coaxed into growing ribbons of graphene. With this technique, the researchers can grow an array of 10,000 transistors on a square chip only a quarter centimeter on a side. Not only could graphene enable extremely small, dense electronic devices, it could also boost clock speeds in computers. UCLA researchers have recently been able to manufacture a 300-gigahertz graphene transistor. This is twice as fast as the best silicon oxide semiconductor transistors and similar in speed to transistors using expensive elements like indium or gallium. Currently, the researchers are trying to push the graphene transistor envelope and hit a speed of 1 terahertz. Since graphene is an extremely thin honeycomb sheet, it can act as a membrane. The cover story of the Sept. 9 edition of the journal Nature features researchers using graphene sheets with tiny holes drilled in them. Using electrical charges, DNA strands can then be drawn through the holes, called nanopores, and read one base at a time – much how you would read data off of a ticker tape. If the technology proves viable, it could greatly speed up the time it takes to read the data off of a full DNA molecule. This would make gene sequencing much cheaper. Since reading individual DNA data is important for the advance of personalized medicine, the impact of the technology could end up being huge. Graphene is just one example of the tech Convergence. From communications to medicine and from computer hardware to bulletproof vests stronger than Kevlar, graphene is a Convergence trend that's making waves TODAY. Ad lucrum per scientia, Ray Blanco For The Daily Reckoning Building Your Own Convergence Fortune originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."

Gold and Silver Hold Steady...Ready for Nov 2-3 FOMC meeting..commentary Oct 23.2010 Posted: 23 Oct 2010 01:47 AM PDT

KWN Weekly Metals Wrap – Gold Market Pullback Posted: 23 Oct 2010 01:40 AM PDT With both gold and silver in expected pullbacks be sure to catch Eric King's interview with expert guests Bill Haynes of CMI Gold and Silver, Trader Dan Norcini of Jim Sinclair's J.S. MineSet and our own Gene Arensberg of Got Gold Report, in this week's King World News Weekly Metals Wrap audio segment for October 23. ...

Silver shortage looms, mining stockbroker Rick Rule tells King World News Posted: 23 Oct 2010 12:32 AM PDT Link:  Silver shortage looms, mining stockbroker Rick Rule tells King World News Image:  The second story is about silver.  It, too, was a GATA release yesterday, but I'm just going to 'borrow' the preamble and insert the link.  Mining stock broker Rick Rule told Eric King of King World News yesterday that shortages of silver may be developing. read more

Where can we find 20,000 tonnes of gold? Posted: 23 Oct 2010 12:32 AM PDT Link:  Where can we find 20,000 tonnes of gold? Image:  I only have two precious metals related stories for you today... and I'll insert them at this point in my column.  The first is GATA release from yesterday... and I'll steal part of Chris Powell's preamble as an introduction.  "In new commentary, the economist and former banker Alasdair Macleod examines the fractional-reserve nature of the London gold market and estimates that the major bullion banks have sold about 20,000 tonnes more gold than they have, the imaginary metal residing in "unallocated" accounts." [This is another nifty name for 'pool account'. read more

Oil and Gold Traders Await Heavy Event Risk Next Week to Define Trends Posted: 23 Oct 2010 12:18 AM PDT courtesy of DailyFX.com October 22, 2010 04:16 PM The capital markets were relatively quiet Friday. With the fundamental winds dying down into the end of the week and big-ticket items scheduled for release next week, energy and metals traders took the time to contemplate their positions. North American Commodity Update Commodities - Energy A Tempered Advance brings US Oil Right Back to the Middle of its Range as US and UK GDP Approach Crude Oil (LS Nymex) - $81.69 // $1.13 // 1.40% In a day of otherwise quiet capital markets, oil would put in for a remarkable run. The 1.4 percent advance was among the largest seen from comparable speculative assets; but then again, the performance would nonetheless leave the commodity exactly in the middle of its three-week congestion pattern. On the week, crude would close essentially unchanged and for a daily performance through the period, the market would trade back and forth between gains and losses. That being said, horizont...

Risk in Everything, Including Gold Posted: 22 Oct 2010 11:58 PM PDT Risk metrics revisited as gold and the stock market start moving together... YOU PROBABLY don't need me to tell you that it's pretty risky out there, says Brad Zigler at Hard Assets Investor. The market, I mean. Which market, you may ask? Increasingly, it doesn't matter. The zag of the gold market has come to look very much like the stock market's zig. Over the past month, the correlation between the S&P 500 and gold has shot up 60 percentage points. The fact that the coefficient is now at 38% should tell you that it's gone from a risk-neutralizing negative value to a tag-along positive. The turnaround, too, followed a near-vertical trajectory. Not that this hasn't happened before. Over the past two years, the correlation coefficient has dropped with equal velocity, but not risen. Gold Bullion and the broad US stock market have been tight traveling buddies before. In fact, earlier this year, the correlation lingered at the 80% level for two weeks. There ought to be more than just academic interest in the heightening of the correlation coefficient. From a portfolio standpoint, it lessens gold's utility; in other words, the metal's hedge value diminishes. A persistently positive correlation makes gold less attractive to institutional money managers and hedge funds. There's yet another worrisome risk metric. The rising cost of gold puts. Complacency about gold's unbridled price rise has been replaced by caution as traders seek insurance from bullion's downside volatility. Pretty scary developments, and just in time for Hallowe'en. We'll see if this means more treats or tricks in store for gold traders. Want to Buy Gold without leverage, without credit risk, and with zero threat of counterparty default...? Go to world No.1 BullionVault now...

"Good Time" to Buy Gold Posted: 22 Oct 2010 11:56 PM PDT This simple, successful indicator says it's still a good idea to Buy Gold... NOW THAT gold has soared from $1200 an ounce to $1350 an ounce, investors interested in gold are worried they're buying at the top, writes John Doody in Steve Sjuggerud's Daily Wealth. While I'm much more focused on buying cheap Gold Mining assets in my Gold Stock Analyst advisory, I know "newbies" want the comfort of a single indicator to forecast gold's future before they climb on board. I've studied the gold market for over 30 years. I've seen it boom and I've seen it bust. And my work says the "Real Interest Rate" is the best forecasting tool for looking at the big picture in gold. Right now, this indicator is saying it's still a good idea to Buy Gold. The Real Interest Rate is the risk-free return on money, adjusted for inflation. It's what you can earn on your cash in the bank. I determine the Real Interest Rate by subtracting the Consumer Price Index (CPI) from the three-month Treasury yield. CPI is the government's gauge of inflation...or how much purchasing power your cash is losing per year. The three-month Treasury yield is the benchmark yield folks can get on their cash at the bank. And when the result of subtracting the CPI rate from the three-month Treasury yield is positive, gold is flat (middle area in chart below). Remember, gold pays no interest. If money in the bank is paying a good interest rate, holding cash is more attractive than holding gold. When the result is negative – when you are sacrificing nothing in interest by owning gold – as the 1970s and 2000s boxes show, the Gold Price soars. This is because money loses purchasing power in a negative Real Interest Rate environment and investors seek the protection of "hard assets." As you can see from the lower right-hand corner of the chart, we are still in an era of negative Real Interest Rates. At the current 1.1% CPI and a typical 0.1% money market yield, $100 at the start of the year will have only $99 in purchasing power at the end. I see a negative Real Interest Rate condition for the next several years...as the Fed will be unable to raise interest rates due to the high US unemployment rate. And even when the Fed begins raising rates, if it lags the CPI increases as it did in the 1970s, Gold Prices will still move higher. Yes, gold has enjoyed a big run in the past few months. But the Fed is committed to keeping interest rates low for years. So gold has years more to run, I believe...and so do Gold Mining stocks. Buy Gold at the lowest prices, and store it in the very safest vaults for just $4 per month using BullionVault...

"Good Time" to Buy Gold Posted: 22 Oct 2010 11:56 PM PDT This simple, successful indicator says it's still a good idea to Buy Gold... NOW THAT gold has soared from $1200 an ounce to $1350 an ounce, investors interested in gold are worried they're buying at the top, writes John Doody in Steve Sjuggerud's Daily Wealth. While I'm much more focused on buying cheap Gold Mining assets in my Gold Stock Analyst advisory, I know "newbies" want the comfort of a single indicator to forecast gold's future before they climb on board. I've studied the gold market for over 30 years. I've seen it boom and I've seen it bust. And my work says the "Real Interest Rate" is the best forecasting tool for looking at the big picture in gold. Right now, this indicator is saying it's still a good idea to Buy Gold. The Real Interest Rate is the risk-free return on money, adjusted for inflation. It's what you can earn on your cash in the bank. I determine the Real Interest Rate by subtracting the Consumer Price Index (CPI) from the three-month Treasury yield. CPI is the government's gauge of inflation...or how much purchasing power your cash is losing per year. The three-month Treasury yield is the benchmark yield folks can get on their cash at the bank. And when the result of subtracting the CPI rate from the three-month Treasury yield is positive, gold is flat (middle area in chart below). Remember, gold pays no interest. If money in the bank is paying a good interest rate, holding cash is more attractive than holding gold. When the result is negative – when you are sacrificing nothing in interest by owning gold – as the 1970s and 2000s boxes show, the Gold Price soars. This is because money loses purchasing power in a negative Real Interest Rate environment and investors seek the protection of "hard assets." As you can see from the lower right-hand corner of the chart, we are still in an era of negative Real Interest Rates. At the current 1.1% CPI and a typical 0.1% money market yield, $100 at the start of the year will have only $99 in purchasing power at the end. I see a negative Real Interest Rate condition for the next several years...as the Fed will be unable to raise interest rates due to the high US unemployment rate. And even when the Fed begins raising rates, if it lags the CPI increases as it did in the 1970s, Gold Prices will still move higher. Yes, gold has enjoyed a big run in the past few months. But the Fed is committed to keeping interest rates low for years. So gold has years more to run, I believe...and so do Gold Mining stocks. Buy Gold at the lowest prices, and store it in the very safest vaults for just $4 per month using BullionVault...

Who Will Defend the US Dollar? Posted: 22 Oct 2010 11:48 PM PDT China and India are raising rates to stem "hot money" fleeing the US Dollar... "EVERYTHING depends on proper listening. Of ten people who listen to the same speech or story, each person may well understand it differently. "Perhaps, only one of them will understand it correctly." HOW SHOULD traders interpret the latest remarks by US Treasury chief Timothy Geithner, who shocked the currency markets on October 18th, citing his determination to defend the value of the US Dollar? asks Gary Dorsch, editor of Global Money Trends. Geithner was asked in a question and answer forum... "Are you concerned with all of the money being printed over the last couple of years? Are we on our way to debasing the value of the Dollar?" Geithner surprised his audience with a passionate defense of the US Dollar. "Not going to happen in this country. It is very important for people to understand that the United States of America and no country around the world can devalue its way to prosperity and competitiveness. "It is not a viable feasible strategy and we will not engage in it. It is very important that people have confidence in our capacity to meet our long-term fiscal obligations, to make sure the Federal Reserve does its job of keeping inflation low and safe over time. And we recognize that the US plays a particularly important special role in the international financial system, because the US Dollar serves as the principal reserve asset of the global financial system. So we're going to work very hard to make sure that we preserve confidence in the strong Dollar." Yet just a few days earlier, during a much-anticipated speech on October 15th, Fed chief Ben "Bubbles" Bernanke broadly hinted that he favored an early resumption of "quantitative easing" (QEII), knocking the US Dollar into a tailspin. "Inflation is running at rates that are too low relative to the levels that the Committee judges to be most consistent with the Fed's dual mandate in the longer run," Bernanke declared. "There would appear, all things being equal, to be a case for further action." Bernanke took the highly unusual step of making it clear that the Fed's policy going forward would be to raise the rate of inflation to 2% by means of massive money printing. The Fed chairman tried to brainwash the American public into believing that QEII will significantly bring down the jobless rate. Bernanke's support for QEII helped the Dow Jones Industrials index to soar above 11,100...despite further losses in US payrolls and a jump in the under-employment (U-6) jobless rate to 17.1%. Bernanke knew that simply hinting at QEII would spark a further sell-off of US Dollars. And after Bernanke spoke, the Australian Dollar reached parity against the US Dollar for the first time since it was freely floated in 1983. The US Dollar also fell to parity with the Canadian Dollar, and hit new all-time lows against the Swiss Franc, and a 15-year low against Japan's Yen. Brazil's Real, Chile's Peso, the Korean Won, and the Indian Rupee rose versus the US Dollar, while Gold Bullion hit a new record high and commodities such as crude oil, copper, corn, cotton, cattle, soybeans, platinum, palladium, rubber, and silver all continued their upward spiral. After Geithner's remarks, the Euro quickly found resistance at $1.400, and began to sink to $1.3935 within a few minutes. The Aussie Dollar dropped 0.80¢ to 98.50¢, before getting blasted again, a few hours later, after China's central bank shocked the markets, by lifting its one-year loan rate a quarter-point to 5.56%, its first rate hike in 3-years, knocking industrial commodities lower. The Aussie plummeted towards 96.50¢ a few hours later, before regaining its footing. The Euro's slide came to a halt at $1.3700, where sidelined buyers emerged. However, 24-hours later, the impact of Geithner's remarks and China's surprise rate hike, had already dissipated into thin air. The Aussie Dollar – a symbol of risk taking – rebounded strongly to 98.75¢, and the Euro recovered to $1.3950. The US Dollar skidded to ¥81, despite threats by the Bank of Japan a few hours earlier to expand its own version of QEIII, beyond the ¥5 trillion of Japanese government bond-buying pledged earlier. Once again, traders resumed their betting on "Bubbles" Bernanke, and a massive tidal wave of QEII, starting after the Fed's next meeting on Nov. 3rd, that would trump the efforts of other central banks to prevent the US Dollar's downfall. A few hours later, Geithner stepped-up his verbal rhetoric, by telling the Wall Street Journal, on October 20th, there's no need for the US Dollar to sink further against the Euro and the Yen, saying these currencies are "roughly in alignment" now. He emphasized that the US Treasury isn't trying to devalue the US Dollar, echoing comments he made in Palo Alto, California. Geithner appeared to offer a secret gentleman's agreement with Beijing, to stop the currency war, if the pace of the Chinese Yuan's appreciation against the US Dollar since September is sustained, to correct its undervaluation. "If China knew that if it moved more rapidly, other emerging markets would move with them, it would be easier for them to move," he said. But traders can expect greater volatility and turbulence in exchange rates, with the Group-of-20 nations moving towards the brink of a currency and trade war that is being driven by high unemployment in the United States. Faced with slumping domestic demand, the US Treasury is trying to boost US exports abroad, by cheapening the value of the US Dollar in relation to other currencies. President Barack Obama is under heavy pressure from leading Democrats, to declare China a currency manipulator, and to agree to stiff tariffs against Chinese imports. The Fed has meantime engineered the devaluation of the US Dollar, by issuing a steady drumbeat of threats to unleash QEII, upon the world money markets. Bond dealers reckon the Fed could print a minimum of $500 billion in the months ahead, or it might decide to monetize the entire US-budget deficit for this fiscal year, projected at $1.2 trillion. Also greasing the skids under the US Dollar has been the steady slide of US Treasury yields compared to German bund yields. In early September, the US Treasury's 5-year note yielded 25-basis points more than German 5-year yields. Today, the US-Treasury's 5-year note yields 53-bps less. The US Dollar's allure as a "safe haven" currency has also crumbled, as tensions surrounding the Greek bond market continue to subside. Credit default swap (CDS's) rates, measuring the odds that Athens would default on its debts, have dropped in half over the past four months, to around 650-basis points today. The US Treasury has sought to gain extra leverage from the Dollar's slide, by seeking to corral the support of other G-20 central bankers and finance ministers, behind its drive to strong-arm China into more rapidly and sharply rising Yuan. With the Dollar down 12% against the Japanese Yen since mid-June, compared with less than 3% versus the Chinese Yuan, sparks began fly. Tokyo denounced Beijing for bidding up the Yen by increasing its purchases of Japanese government notes. And since Beijing scrapped a 23-month-old peg to the Dollar on June 19th, and said it would let the Yuan resume a managed "dirty" float, the Yuan has appreciated 2.8% against the US Dollar, but weakened 10% against the Euro. "It is much worse against the Euro than the US Dollar – this is not a good situation. It contributes to global imbalances. We want China to assume its responsibilities as a global player," said Eurozone finance chief Jean-Claude Juncker. US lawmakers and President Obama have seized upon America's widening trade deficit, which reached $49.7 billion in June 2010, to take aim against the Chinese Yuan. Over the last 12 months, the US-trade deficit with China reached $257 billion, and is running 21% above the pace from a year earlier. The deficit with China as a share of America's balance of payments is now over 40%, compared to just 20% in 2001. Year-to-date imports from China are $229 billion, while exports are only $55.8 billion, leaving the ratio of imports to exports at 4.9. The average for all nations' imports-to-exports with the United States is a ratio of 1.6. Beijing intervenes regularly in its foreign exchange market to rig the value of the Yuan, and it's acquired a massive $2.65 trillion in foreign exchange reserves, while keeping the Chinese Yuan undervalued by 40% against the US Dollar, on a trade-weighted basis. Democrats and Republicans in the US Congress aren't willing to wait for Beijing to revalue the Yuan at a snail's pace over the next several years. In Hong Kong, the 12-month Yuan forward contract is trading at 6.4425 per Dollar, indicating that traders figure that Beijing would only allow the Yuan to rise by a paltry 3.2% rise against the Dollar over the next 12-months. So instead of waiting, US lawmakers aim to level the playing filed in one fell swoop. On Sept 29th, the House passed legislation by an overwhelming margin, 348-79, to allow the Commerce department to apply tariffs on Chinese goods entering the United States. In the past, the Senate has pushed for tariffs of 25% on Chinese imports. "There is no question that China manipulates its currency in order to subsidize Chinese exports," said Republican Senator Richard Shelby of Alabama. "The only question is: Why is the administration protecting China by refusing to designate it as a currency manipulator?" On October 16th, Treasury chief Geithner backed away from a showdown with Beijing over the value of the Yuan, by delaying a much-anticipated decision on whether to label China as a currency manipulator until after the Group-of-20 summit on November 11th. "Since September 2, 2010, the pace of the Yuan's appreciation has accelerated to a rate of more than 1% per month. If sustained over time, this would correct a significantly undervalued currency," the Treasury said. Geithner said on October 18th, that the delay in the currency report was... "an acknowledgment of the faster pace of the Yuan's appreciation and we'd like to see that sustained. What we know now is that it's significantly undervalued, which I think they acknowledge and it's better for them, and of course, very important for us, that it move. And I think it's going to continue to move." Bank of England Mervyn King warned that the prospect of a trade war over global imbalances could spark a 1930s-style economic collapse: "The need to act in the collective interest has yet to be recognized, and, unless it is, it will be only a matter of time before one or more countries resort to trade protectionism as the only domestic instrument to support a necessary rebalancing. That could, as it did in the 1930's, lead to a disastrous collapse in activity around the world. Every country would suffer ruinous consequences – including our own." A stronger Yuan is in China's best interest, since it can be utilized to shield the world's biggest buyer of commodities from the sting of sharply higher import prices. But it also acts to push prices higher. Since Beijing un-hinged the tightly pegged Dollar-Yuan peg, and the Fed began sending signals about unleashing of QEII, the Continuous Commodity Index (CCI) – an equally weighted index of 17 different commodity futures, has rallied by 23% to its highest level in two-years. Coffee, cotton, corn, cattle, gold, silver, platinum, soybeans, and wheat have been the stellar performers, with crude oil lagging behind. Other key industrial commodities not included in the index which have skyrocketed are tin, rubber, nickel, and palladium. Efforts by Fed to weaken the US Dollar by threatening to unleash QEII have led to sharply higher commodity prices, and is pushing-up China's inflation rate to 3.5% per year. There's also bubbles brewing in Chinese property prices and renewed interest in Shanghai red-chips. Against this backdrop, the Fed and the US Treasury have exerted considerable pressure on Beijing to allow the Yuan to rise. The People's Bank of China (PBoC) finds it difficult to lift interest rates to combat inflation, because a widening in the Chinese yield spread over US Treasuries would only suck in more "hot-money" into the Chinese Yuan. But on October 19th, the PBoC surprised the markets with its first interest-rate hike in three years, taking one-year lending rates 0.25% higher to 5.56%. The rate hike follow on the heels of the PBoC's decision to lift reserve requirements by half-point to 17.5% at six Chinese banks last week, draining CNY200 billion out of the Shanghai money markets. Commodity traders are beginning to wonder if Beijing has just started to roll-out a longer-term tightening campaign. The Reserve Bank of India (RBI) has also been forced to tighten its monetary policy to fend off commodity inspired inflation, by lifting its repo rate on five occasions this year to 6%. India's wholesale prices are 8.5% higher than a year ago, and inflation is far above the RBI's perceived tolerance level of around 5%, keeping the inflation-adjusted interest rate stuck in negative territory. India's economy is now on track to grow at 8.5% this year, lagging only China's stellar growth, so the RBI could be forced to hike its repo rate several more times if commodities continue to spiral higher on the magic carpet ride of the Bernanke's QEII. Amongst resource producers, Chile is among a number of emerging economies, including Brazil, India, Thailand, Korea, and South Africa, whose currencies have risen sharply against both the US Dollar and the Dollar-linked Yuan. These currencies are rising from an influx of foreign capital seeking higher returns than are available in the UK, Japan and the US, where interest rates are hovering near zero-percent. Capital is flooding into emerging markets and could lead to excessive exchange-rate moves, asset bubbles and financial instability, warned IMF chief Dominique Strauss-Kahn on October 18th. Many of these emerging countries are intervening repeatedly in the currency markets to hold down the value of their currency against the US Dollar, and – by default – the Chinese Yuan. "Near-zero interest rates and rapid monetary expansion are geared at stimulating domestic demand but also tend to produce a weakening of their currencies," warned Brazilian Finance Minister Guido Mantega on October 9th. "As a result, emerging countries will continue to build up reserves in foreign currency to avoid volatility and appreciation." Traders are pouring vast sums of capital into the emerging stock markets, forcing-up the exchange rate of emerging currencies and inflating asset bubbles. The MSCI Emerging Markets Index has soared 13% since the start of September. The US Dollar has tumbled 14% against the Chilean Peso since the beginning of July, due to fears of QEII. Chile's Peso is also gaining support from soaring copper prices, which reached a 2-year high of $8,400 per ton in London. Chile posted economic growth of 6.5% in the second quarter, helped by inflated copper prices, which are linked to a staggering 40% of the country's total economic output. Banco-de-Chile chief Jose De Gregorio is now utilizing the direction of copper as a real-time indicator to gauge the forward momentum of the local economy. In sync with higher copper prices, Chile's central bank has also guided its overnight loan rate higher, by 225-basis points to 2.75% last week. In turn, the steady increase in Chile's interest rates has widened the gap with US Treasuries, and has attracted foreign capital – putting more upward pressure on the Chilean Peso. Chile's finance chief Felipe Larrain says: "Both China and US are at fault in the currency war. Although the currency tension seems to be a dispute just between Washington and Beijing, its implications go well beyond the two countries. "If exchange rate variability between the Yuan and the US Dollar is very little, the US currency will likely depreciate against currencies of emerging markets. Developed but fast-growing economies, like Korea and Australia, in turn, will also face great appreciation pressure on their currencies." Brazil's ministry of finance (MoF) is also locked in a bitter struggle with traders over the value of its currency – the Real – in a battle that requires unorthodox techniques. The MoF is desperately trying to halt the appreciation of the real, which has more than doubled in value against the US Dollar since President Lula da Silva took office in 2003. Brazil and its currency are now the darlings of foreign investors. Yet what was once seen as a blessing has become a curse. From January until August, Brazil's trade surplus was whittled down to $11.6 billion, or 41% less than in the same period a year earlier. Finance chief Guido Mantega warned he'll take whatever measures are necessary to keep the real from further eroding Brazil's trade surplus. The Bank of Brazil has resorted to multiple interventions in the currency market to prevent the Real from climbing higher. Brazil's foreign exchange stash now exceeds $250 billion, with $165 billion parked in US Treasuries it's bought to try and buoy the US Dollar. However, the combination of Brazil's robust economy and the world's highest interest rate at 10.75%, has made the real an irresistible target for foreign traders, at a time when Japanese and US bonds are saturated with excess liquidity and ultra-low yields. Brazil has one of the most advanced industrial sectors in Latin America, accounting for roughly one-third of the GDP. It's also a major supplier of commodities and natural resources, with significant operations in iron-ore, tin, sugarcane, coffee, tropical fruits, orange juice, corn, cotton, cocoa, tobacco, and forest products. Brazil has the world's largest commercial cattle herd, and it's the world's No.2 grower of soybeans and No.1 exporter of ethanol, which are all soaring thanks to the Federal Reserve's QEII plans. Brazil should begin to reap bigger trade surpluses in the months ahead, as the latest upward thrust in global commodity prices filters into its economy. Currency dealers are tracking commodity prices, lifting the Real briefly above 60-US¢ last week. Finance chief Mantega says Brazil is engaged in a "currency war" with Bernanke's Fed, and has "a lot of ammunition" such as boosting taxes on foreign investment in Brazilian fixed income. Mantega criticized the Fed for "considering more quantitative easing. It won't reactivate the US-economy, but it will weaken the US Dollar." On October 18th, Brazil hiked taxes on foreign investment in fixed-income bonds to 6%, and also closed a loophole that allows speculators to avoid the tax on margin deposits for transactions in futures markets. The higher taxes will only affect new flows of money into the bond market, not deposits already in Brazil. "This currency war needs to be deactivated," Mantega said. China's central bank (PBoC) surprised traders on October 19th, with its first hike in bank deposit rates in three years, reflecting its concern about rising asset prices and stubbornly high inflation. The PBoC guided 1-year bank deposit rates higher by 25-basis points, to 2.50%, and triggered a 3% drop in the Shanghai gold market. Once a consensus has been forged in Beijing to raise or cut rates, past experience shows that the PBoC moves in a series of adjustments. To date, the PBoC has relied on slowing down bank lending and lifting banks' reserve requirements to keep the growth of the M2 money supply from boiling over. Still, China's Treasury yields rates are too low for an economy that's growing at a 10% clip. The real rate of interest on China's Treasury notes is buried in negative territory – yielding less than the official 3.6% rate of inflation. Negative interest rates are whetting the appetite of Chinese traders in gold, silver, and base metals. The Shanghai stock index, a laggard this year, has jumped 16% in the past nine trading days, led by banks and commodity related companies. The PBoC's rate hiked jolted the yield on China's 5-year T-note out of its summer slumber, lifting it upwards by 30-basis points to as high as 3.05% on October 19th. In a knee-jerk reaction, Shanghai Gold Prices fell 3% to as low as CNY8,850 per ounce, where an upward sloping trend-line resides. Buyers emerged from the sidelines, on ideas that negative interest rates in China would continue to fuel gold's historic rally. Li Daokui, an adviser to the People's Bank of China, said on October 19th: "The interest rate rise will make people feel safe and prevent them from taking out their money from bank deposits to invest in stocks or property market." However, gold traders and speculators in Shanghai red-chips disagree. The amount of cash sitting in China's bank deposits increased by CNY1 trillion ($156 billion) in September, to CNY30 trillion, and could lend plenty of firepower for the Shanghai gold market. On October 20th, China's central bank continued to exert upward pressure on short-term Treasury yields, by draining CNY145 billion ($21.8 billion) from the Shanghai money markets through 91-day reverse repos. The PBOC also mopped-up CNY50 bi

US Commercial Real Estate: "A Mess" Posted: 22 Oct 2010 11:40 PM PDT The inside scoop on commercial US real estate, plus the robo-signing scandal... FOLLOWING the real estate debacle of the 1980s, Andy Miller co-founded SevoMiller, Inc. in 1990, writes David Galland of Casey Research. The company provided workout services for major financial institutions throughout the United States, and also began buying and developing apartments, retail and office properties. From its founding to the present, the company's acquisitions totaled over 30,000 apartment units, several million square feet of retail space, and numerous office projects throughout the country, including the states of Colorado, Arizona, California, Nevada, Illinois, Texas, Louisiana, Indiana, Oklahoma, Georgia, and Florida. Employing over 500 people, SevoMiller also built, managed, marketed, leased, and sold commercial real estate for many institutions and third-party owners across the country. Clients included General Electric Credit, SunAmerica, and Huntington Bank, as well as many defunct banks, savings and loans, and private equity groups. In 1994, Andy and Dave Frishman co-founded Realty Funding Group, a mortgage and finance company that has acted as a mortgage broker and mortgage banker for numerous commercial real estate projects across the US RFG has provided financing for over $1 billion of commercial real estate. In 1998, Andy founded Rapid Funding, a commercial and residential hard-money lender that has loaned in excess of $200 million for land developments, shopping centers, office buildings, and construction loans on condominium buildings. In addition to sourcing and servicing real estate loans, Rapid Funding also handled its own workouts and sales. Each of these companies founded or co-founded by Andy now operates as part of the Miller Frishman Group. Here, I speak to Andy Miller on behalf of The Casey Report, where readers seek big profits from big trends... David Galland: Given the importance of real estate to the economy, it's not surprising that we get a lot of questions about the sector. What's the buzz in the industry? Andy Miller: Talking about single family, as opposed to commercial real estate, the most visible news story is what happens with the "robo signing" scandal and the foreclosure moratorium. The short answer is that we don't know the full implications yet. A lot will depend on how inclusive this becomes in terms of which lenders will also adopt this moratorium, in how many states, and for how long? All those questions have yet to be answered, but as a generic comment, I'll say this; if what happens results in a concerted effort to impede or stop or delay foreclosures throughout the country, it's going to have a very, very big impact. It's going to have an impact in some ways that are obvious, and some ways that aren't so obvious. We believe there are roughly 8 million loans now in some stage of default or foreclosure. If those 8 million loans are impeded, if the time that it takes to foreclose is extended, or if state attorney generals won't let lenders start foreclosures, that will have serious repercussions. Paradoxically, because it will reduce the number of foreclosures and short-sales coming to market, one of the things you may see is the home market improve slightly over the next three to five months. That may seem like a blessing to the politicians as it will certainly staunch some of the negative news headlines out there around foreclosures, but it doesn't do you any good because ultimately the price paid for the short-term abatement in the news cycle could be high. DG: Okay, so that's a plus for the political optics of the situation, but what about the flipside? Andy Miller: Well, for starters you have to ask what impact this will have in the mid to long term on the ability to sell mortgage-backed securities into the marketplace? If you're an investor or institution that's already loaded up on a bunch of mortgage-backed securities and your master servicers or your special servicers are saying, "We're really stuck in this mire right now where we can't foreclose or address our defaults," how much more of this paper are you going to want to buy? I don't think very much. Now, the truth is that the Fed is buying a lot of these things, but at some point in time, it is going to need to divest itself of the trillions of Dollars of mortgage-backed securities, and who's going to want to buy those, and at what yields? I mean, if you know that with the swipe of a pen, an attorney general can impose a moratorium or somehow prohibit you from doing foreclosures, that has to have dire implications for the future of mortgage-backed securities. DG: Then there's the moral hazard. Andy Miller: Absolutely. If you're a hard-working person who has stayed current on your mortgage even at some hardship to yourself, and your neighbor who's been living in his home for 12 or 15 months without making payments comes over to the barbecue on Saturday afternoon and tells you, "Oh by the way, my foreclosure has been blocked. It looks like I get to live here another 12 or 18 months scot-free," does that encourage anybody else to do the same? It's very hard to know, David, but it doesn't do the market any good. As you know, it's my contention that the only thing that's going to fix this situation is to let the free market deal with the issues so that prices can settle at their own level. All these machinations to manipulate foreclosures and/or prices and/or interest rates are only exacerbating the already bad consequences for the home market. DG: What should concern investors in all of this? Andy Miller: Frankly, we can't know yet. There are too many variables still unsettled. What I would advise is that everybody should be acutely aware of what's happening right now, and once we really know how much time this is going to take and what lenders are most involved, only then will we be able to interpret how bad this is going to be and what the risks are. But right now it's unknown. It just doesn't look very good. DG: What about commercial real estate? Andy Miller: In contrast with the residential housing market, on the commercial side everybody has the giggles. I've never seen anything like it. It's a real paradox, because there's a very active commercial market right now with all kinds of money entering the market and paying ridiculously high prices for assets, and it is almost as if the crisis never happened. In some cases, meaning some states and some product types, we are actually seeing commercial real estate prices at about what they were in '07. DG: These are people looking to deploy their cash into tangible, productive assets? Andy Miller: Yes. There's a lot of institutional money on the sidelines earning no yield that is increasingly being deployed. A lot of this hot money has found its way into commercial real estate. There are very few individual buyers out there that are actually laying out their own money to buy product – this is mostly institutional money, which means the buyers are using other people's money to chase product, and we see that acutely. DG: So these institutional money managers are often given time limits during which they have to deploy the money they are entrusted with, or return it to the investors. And so the buying can become fairly indiscriminate. Do these chickens come home to roost at some point? Andy Miller: Yes, absolutely. David, the commercial business is a mess. The fundamentals are not improving. We've talked about this before, but just to reiterate, you have to start by asking, what constitutes a recovery in commercial real estate? Everybody is very convinced right now that we're seeing a recovery. In commercial real estate, we can be specific in defining what that actually means. Recovery means one or more of three things are happening: either your rents are going up, your expenses are going down, or your vacancies are going down. That's it. In order for commercial real estate to be in recovery, one or more of those factors have to be present. That is a recovery. If you measure each section of the United States, if you look at all the various product types within those states, those fundamental factors are not improving, meaning there is no recovery happening. In fact, I would argue that they're eroding. DG: What about the banks? Recently money manager Chris Whalen made the case that despite being given essentially free money by the Fed, and lots of it, the big banks are still in deep trouble over their mortgage portfolios. Andy Miller: The banks have been very fortunate because they've managed to squirrel away a lot of money into their reserves, at least those institutions that focus on the commercial side. This is not true on residential. On the commercial side, I think they are very heavily reserved for a lot of what they see as their problems. Most of the banks that I come into contact with feel very comfortable that they have adequate reserves, so that no matter what happens to commercial real estate, they believe they're covered. DG: I guess we'll find out in time if they are. Andy Miller: Yes, we will. Even so, I don't think commercial is the big Achilles heel for these institutions right now because of the manipulations the federal government has undertaken. I think the real Achilles heel for all these banks, and for bond markets, is going to be the residential markets. Not to be overly dramatic, but this is a huge ticking time bomb. Things are getting worse, not better. In fact, what we see now is that the distress is moving up the scale. The single-family home markets under $350,000 in a lot of the country are fairly sound. There is a pick-up in sales activity and lending. But when you get to the mid and the upper ends of the marketplace, there's no upward mobility. In other words, people aren't selling less expensive houses in order to trade up, which was very much going on in the housing bubble. In fact, people are having a very difficult time in the mid and upper ranges selling their homes. For one reason: it is now very difficult to finance these homes without a large down payment. We've watched that situation closely and think that's going to really exacerbate the problems in the market. DG: How serious do you think the problems in loan origination documents are? Andy Miller: It's certainly problematic, and there was a lot of sloppiness when these loans were securitized and sold off. Who knows where the original documents are or what shape they are in? I can tell you, however, that if you lose an original note and you have to file a foreclosure, it's not the end of the world. You can have that addressed by a title company, but it's expensive and it's time consuming. But at this point we don't know the extent to which documents are lost, poorly executed, or don't exist. For the time being, Bank of America has put a national moratorium on foreclosures. In order to understand how big a problem this really is, I think we have to wait and see who else follows suit, and how long this will last. If you take this to its nth degree and you assume that the worst case unfolds, it's bad. It's going to look good in the short run, but it's really bad for the market, and it's really bad for homeowners going forward. DG: Obama's refusal to sign the bill regarding electronic notarizations strikes me as being based as much on politics as anything. After all, ahead of an election, it wouldn't do to be seen signing something considered supportive of foreclosures. So the administration has just kicked the can down the road, past the election. Andy Miller: At this point I would judge every event and every news story that you see by just one criterion, and that is that the government is doing everything it can to slow down or impede the foreclosure process. So whether the president signs something or doesn't sign something, or says something or doesn't say something, the intent is to do whatever it takes to impede or slow down this crisis. If there are losses to mortgage holders and investors, the politicians will try to turn this to their advantage by framing it as being that the banks and mortgage lenders deserve the losses because they're the cause of this problem. That's what you're going to see, that's what you're going to hear, and it's all intended to be a feel-good solution that makes everybody believe that our government is really looking out for us. Meanwhile, the SOBs that originated all these mortgages are going to get what they deserve. DG: But ultimately this has to be resolved – that is unless the government is willing to give a bunch of people free houses... Andy Miller: Years ago I said to you that what was happening in real estate was going to culminate in a big crisis, but that if it were to happen in a measured way that let the free market do what it does best, then the crisis would be less intense. But the latest developments are going to create a lot of intensity and only make things worse. DG: What about Fannie and Freddie? At this point, they are de facto government institutions, so not letting them foreclose would seem to set up another huge loss to taxpayers. Andy Miller: The nice thing about being the federal government is that you can throw Fannie and Freddie under the bus and suffer no real consequences, at least not in the short term. For most people, that will look good. The important thing for your readers to remember is that these aren't solutions that do anything. These are solutions that have optics, that's all. There's an election coming up. The government wants people to feel good. They want everybody to feel like our government is really addressing these problems. They want it to seem to the public like the government cares. And that's what this is, that's what this is all about, in my opinion, and I think you're going to see some really very, very undesirable, unintended consequences. DG: And on that note, thank you very much for your time. Very interesting, as always. Andy Miller: Happy to help out. Let's talk again soon. Got gold? Start with a free gram of physical gold right now at BullionVault...

US Commercial Real Estate: "A Mess" Posted: 22 Oct 2010 11:40 PM PDT The inside scoop on commercial US real estate, plus the robo-signing scandal... FOLLOWING the real estate debacle of the 1980s, Andy Miller co-founded SevoMiller, Inc. in 1990, writes David Galland of Casey Research. The company provided workout services for major financial institutions throughout the United States, and also began buying and developing apartments, retail and office properties. From its founding to the present, the company's acquisitions totaled over 30,000 apartment units, several million square feet of retail space, and numerous office projects throughout the country, including the states of Colorado, Arizona, California, Nevada, Illinois, Texas, Louisiana, Indiana, Oklahoma, Georgia, and Florida. Employing over 500 people, SevoMiller also built, managed, marketed, leased, and sold commercial real estate for many institutions and third-party owners across the country. Clients included General Electric Credit, SunAmerica, and Huntington Bank, as well as many defunct banks, savings and loans, and private equity groups. In 1994, Andy and Dave Frishman co-founded Realty Funding Group, a mortgage and finance company that has acted as a mortgage broker and mortgage banker for numerous commercial real estate projects across the US RFG has provided financing for over $1 billion of commercial real estate. In 1998, Andy founded Rapid Funding, a commercial and residential hard-money lender that has loaned in excess of $200 million for land developments, shopping centers, office buildings, and construction loans on condominium buildings. In addition to sourcing and servicing real estate loans, Rapid Funding also handled its own workouts and sales. Each of these companies founded or co-founded by Andy now operates as part of the Miller Frishman Group. Here, I speak to Andy Miller on behalf of The Casey Report, where readers seek big profits from big trends... David Galland: Given the importance of real estate to the economy, it's not surprising that we get a lot of questions about the sector. What's the buzz in the industry? Andy Miller: Talking about single family, as opposed to commercial real estate, the most visible news story is what happens with the "robo signing" scandal and the foreclosure moratorium. The short answer is that we don't know the full implications yet. A lot will depend on how inclusive this becomes in terms of which lenders will also adopt this moratorium, in how many states, and for how long? All those questions have yet to be answered, but as a generic comment, I'll say this; if what happens results in a concerted effort to impede or stop or delay foreclosures throughout the country, it's going to have a very, very big impact. It's going to have an impact in some ways that are obvious, and some ways that aren't so obvious. We believe there are roughly 8 million loans now in some stage of default or foreclosure. If those 8 million loans are impeded, if the time that it takes to foreclose is extended, or if state attorney generals won't let lenders start foreclosures, that will have serious repercussions. Paradoxically, because it will reduce the number of foreclosures and short-sales coming to market, one of the things you may see is the home market improve slightly over the next three to five months. That may seem like a blessing to the politicians as it will certainly staunch some of the negative news headlines out there around foreclosures, but it doesn't do you any good because ultimately the price paid for the short-term abatement in the news cycle could be high. DG: Okay, so that's a plus for the political optics of the situation, but what about the flipside? Andy Miller: Well, for starters you have to ask what impact this will have in the mid to long term on the ability to sell mortgage-backed securities into the marketplace? If you're an investor or institution that's already loaded up on a bunch of mortgage-backed securities and your master servicers or your special servicers are saying, "We're really stuck in this mire right now where we can't foreclose or address our defaults," how much more of this paper are you going to want to buy? I don't think very much. Now, the truth is that the Fed is buying a lot of these things, but at some point in time, it is going to need to divest itself of the trillions of Dollars of mortgage-backed securities, and who's going to want to buy those, and at what yields? I mean, if you know that with the swipe of a pen, an attorney general can impose a moratorium or somehow prohibit you from doing foreclosures, that has to have dire implications for the future of mortgage-backed securities. DG: Then there's the moral hazard. Andy Miller: Absolutely. If you're a hard-working person who has stayed current on your mortgage even at some hardship to yourself, and your neighbor who's been living in his home for 12 or 15 months without making payments comes over to the barbecue on Saturday afternoon and tells you, "Oh by the way, my foreclosure has been blocked. It looks like I get to live here another 12 or 18 months scot-free," does that encourage anybody else to do the same? It's very hard to know, David, but it doesn't do the market any good. As you know, it's my contention that the only thing that's going to fix this situation is to let the free market deal with the issues so that prices can settle at their own level. All these machinations to manipulate foreclosures and/or prices and/or interest rates are only exacerbating the already bad consequences for the home market. DG: What should concern investors in all of this? Andy Miller: Frankly, we can't know yet. There are too many variables still unsettled. What I would advise is that everybody should be acutely aware of what's happening right now, and once we really know how much time this is going to take and what lenders are most involved, only then will we be able to interpret how bad this is going to be and what the risks are. But right now it's unknown. It just doesn't look very good. DG: What about commercial real estate? Andy Miller: In contrast with the residential housing market, on the commercial side everybody has the giggles. I've never seen anything like it. It's a real paradox, because there's a very active commercial market right now with all kinds of money entering the market and paying ridiculously high prices for assets, and it is almost as if the crisis never happened. In some cases, meaning some states and some product types, we are actually seeing commercial real estate prices at about what they were in '07. DG: These are people looking to deploy their cash into tangible, productive assets? Andy Miller: Yes. There's a lot of institutional money on the sidelines earning no yield that is increasingly being deployed. A lot of this hot money has found its way into commercial real estate. There are very few individual buyers out there that are actually laying out their own money to buy product – this is mostly institutional money, which means the buyers are using other people's money to chase product, and we see that acutely. DG: So these institutional money managers are often given time limits during which they have to deploy the money they are entrusted with, or return it to the investors. And so the buying can become fairly indiscriminate. Do these chickens come home to roost at some point? Andy Miller: Yes, absolutely. David, the commercial business is a mess. The fundamentals are not improving. We've talked about this before, but just to reiterate, you have to start by asking, what constitutes a recovery in commercial real estate? Everybody is very convinced right now that we're seeing a recovery. In commercial real estate, we can be specific in defining what that actually means. Recovery means one or more of three things are happening: either your rents are going up, your expenses are going down, or your vacancies are going down. That's it. In order for commercial real estate to be in recovery, one or more of those factors have to be present. That is a recovery. If you measure each section of the United States, if you look at all the various product types within those states, those fundamental factors are not improving, meaning there is no recovery happening. In fact, I would argue that they're eroding. DG: What about the banks? Recently money manager Chris Whalen made the case that despite being given essentially free money by the Fed, and lots of it, the big banks are still in deep trouble over their mortgage portfolios. Andy Miller: The banks have been very fortunate because they've managed to squirrel away a lot of money into their reserves, at least those institutions that focus on the commercial side. This is not true on residential. On the commercial side, I think they are very heavily reserved for a lot of what they see as their problems. Most of the banks that I come into contact with feel very comfortable that they have adequate reserves, so that no matter what happens to commercial real estate, they believe they're covered. DG: I guess we'll find out in time if they are. Andy Miller: Yes, we will. Even so, I don't think commercial is the big Achilles heel for these institutions right now because of the manipulations the federal government has undertaken. I think the real Achilles heel for all these banks, and for bond markets, is going to be the residential markets. Not to be overly dramatic, but this is a huge ticking time bomb. Things are getting worse, not better. In fact, what we see now is that the distress is moving up the scale. The single-family home markets under $350,000 in a lot of the country are fairly sound. There is a pick-up in sales activity and lending. But when you get to the mid and the upper ends of the marketplace, there's no upward mobility. In other words, people aren't selling less expensive houses in order to trade up, which was very much going on in the housing bubble. In fact, people are having a very difficult time in the mid and upper ranges selling their homes. For one reason: it is now very difficult to finance these homes without a large down payment. We've watched that situation closely and think that's going to really exacerbate the problems in the market. DG: How serious do you think the problems in loan origination documents are? Andy Miller: It's certainly problematic, and there was a lot of sloppiness when these loans were securitized and sold off. Who knows where the original documents are or what shape they are in? I can tell you, however, that if you lose an original note and you have to file a foreclosure, it's not the end of the world. You can have that addressed by a title company, but it's expensive and it's time consuming. But at this point we don't know the extent to which documents are lost, poorly executed, or don't exist. For the time being, Bank of America has put a national moratorium on foreclosures. In order to understand how big a problem this really is, I think we have to wait and see who else follows suit, and how long this will last. If you take this to its nth degree and you assume that the worst case unfolds, it's bad. It's going to look good in the short run, but it's really bad for the market, and it's really bad for homeowners going forward. DG: Obama's refusal to sign the bill regarding electronic notarizations strikes me as being based as much on politics as anything. After all, ahead of an election, it wouldn't do to be seen signing something considered supportive of foreclosures. So the administration has just kicked the can down the road, past the election. Andy Miller: At this point I would judge every event and every news story that you see by just one criterion, and that is that the government is doing everything it can to slow down or impede the foreclosure process. So whether the president signs something or doesn't sign something, or says something or doesn't say something, the intent is to do whatever it takes to impede or slow down this crisis. If there are losses to mortgage holders and investors, the politicians will try to turn this to their advantage by framing it as being that the banks and mortgage lenders deserve the losses because they're the cause of this problem. That's what you're going to see, that's what you're going to hear, and it's all intended to be a feel-good solution that makes everybody believe that our government is really looking out for us. Meanwhile, the SOBs that originated all these mortgages are going to get what they deserve. DG: But ultimately this has to be resolved – that is unless the government is willing to give a bunch of people free houses... Andy Miller: Years ago I said to you that what was happening in real estate was going to culminate in a big crisis, but that if it were to happen in a measured way that let the free market do what it does best, then the crisis would be less intense. But the latest developments are going to create a lot of intensity and only make things worse. DG: What about Fannie and Freddie? At this point, they are de facto government institutions, so not letting them foreclose would seem to set up another huge loss to taxpayers. Andy Miller: The nice thing about being the federal government is that you can throw Fannie and Freddie under the bus and suffer no real consequences, at least not in the short term. For most people, that will look good. The important thing for your readers to remember is that these aren't solutions that do anything. These are solutions that have optics, that's all. There's an election coming up. The government wants people to feel good. They want everybody to feel like our government is really addressing these problems. They want it to seem to the public like the government cares. And that's what this is, that's what this is all about, in my opinion, and I think you're going to see some really very, very undesirable, unintended consequences. DG: And on that note, thank you very much for your time. Very interesting, as always. Andy Miller: Happy to help out. Let's talk again soon. Got gold? Start with a free gram of physical gold right now at BullionVault...

Fake Money, Real Silver Posted: 22 Oct 2010 11:36 PM PDT Non-Lunar Silver Bullion is descending from high orbit... GREAT NEWS! says Dan Denning in his Daily Reckoning Australia. NASA researchers say there is at least a billion gallons of water on the moon. And that's just in one crater! They published the findings in the journal Science. So raise a glass to la bella luna! This means that if the accelerated depletion of natural resources by the limitless printing of fake money continues – and there's a pretty good chance it will – we'll have to find a new home with new resources to put to good use after this planet has been looted and depleted into a scorched and lifeless husk, like the moon. The other good news is that the moon is pretty close, physically speaking. You just look right up in the sky and it's there! It looks so close you could almost touch it. It was especially beautiful and silvery when we woke up at 3am last night wondering what the Gold Price would do today. But speaking of gold brings us back to sliver. Scientists say there is some silver on the moon as well, but not enough to mine. That's okay, though. There's no need to hop on Virgin Galactic flight to the moon for your silver. You can buy it for US$23.19 per ounce. That's 31% more than you would have paid if you bought a year ago. But it's 5.8% less than sliver was selling for just last week. You can see that silver is selling off a bit as the US Dollar rebounds. But we've written about this all week, so we won't blather on. The Dollar was probably oversold on a technical basis. Silver, gold, and other commodities are consolidating. This is good news if you haven't bought any yet. They're getting cheaper, for now. Gold, in fact, is on track to make its largest weekly decline since July. Gold Bullion is already at a three-week low and is set to make its first weekly decline in 12 weeks. Once again, we greet these sorts of corrections with relief. It's a sign that there are higher highs ahead. How do we know? The current US Dollar Silver Price, adjusted for inflation, is lower today than it was during the height of the American Civil War. The 1980 inflation-adjusted all-time high of $134.69 (in today's money) was somewhat anomalous, since it was also the product of the Hunt brothers buying up a lot of silver futures. Incidentally, it's often repeated that the Hunt brothers tried to illegally corner the market and manipulate the price of silver higher. They are often portrayed as rich, evil, capitalist pig villains. Investopaedia's telling of the tale is different. It suggests the Hunt brothers wanted a large position in silver to prepare for an inflationary melt-up in precious metals. It also suggests that the only reason the Hunt brothers were busted was not because they had really done anything illegal, but because the government directly intervened against them. First, the Feds prevented the number of long positions that could be taken in the futures markets. Now, instead of the market reflecting two highly-motivated, leveraged, and cashed-up buyers, the shorts stepped in and began to overwhelm the longs and Silver Prices fell. Then the Federal Reserve actively discouraged what it called lending for "speculative activity". The Hunts had good credit on Wall Street with a large family fortune. But New York bankers knew the Feds were after the Hunts, and so the loans and leverage dried up, forcing the Hunts into a corner. You can see that the government does like competition for its money. The Hunts correctly saw silver as a store of value and a viable competitor to the Federal Reserve Notes passing themselves off as American money. Faced with a direct threat to its counterfeiting monopoly by real money, the government simply changed the rules in mid-stream to destroy someone who challenged its privileged position. Of course you might think we would be all in favour of a Federal Reserve that discourages speculative lending...or lending for speculation. And you'd be right! But in the Hunt's case, the government was clearly looking after its own interests (retaining the credibility of Federal Reserve notes as money) and not on the legal functioning of a real market. If anything, it looks like the government intervened to distort a market that was functioning perfectly well. These days, of course, the monetary authorities don't have any problem encouraging speculative lending. That lending funds the asset bubbles which made banks rich – the same banks that own the Fed. If you're a drug dealer, you want people using the product. Anyone who tries to get clean, honest and sound is bad for business. This has been going on for a long while, as the chart below shows. The active suppression of alternatives to Federal Reserve Notes started in the American Civil War and has since gone global, with all governments everywhere keen to replace good money (gold and silver) with debt-based money. This is an era of State-backed monetary fraud that your editor thinks may be ending in your investment lifetime, as the State itself reaches a fiscal crisis. More on that after the chart... It's probably no coincidence that Silver Bullion is approaching about the same price it fetched when the American experiment in a strong Federal government with its own monopoly on money was just getting off the ground. A strong central, federal government does not appear to be possible without a centralised monetary system that does not tolerate competition. As Murray Rothbard explains in A History of Money & Banking in the United States: "The Civil War exerted an even more fateful impact on the American monetary and banking system than had the War of 1812. It set the United States, for the first time except for 1814-1817, on an irredeemable fiat currency that lasted for two decades and led to reckless inflation of prices. This "greenback" currency set a momentous precedent for the post-1933 United States, and even more particularly for the post-1971 experiment in fiat money. "Perhaps an even more important consequence of the Civil War was the permanent change wrought in the American banking system. The federal government in effect outlawed the issue of state bank notes, and created a new, quasi-centralized, fractional reserve national banking system which paved the way for the return of outright central banking in the Federal Reserve System. "The Civil War, in short, ended the separation of the federal government from banking, and brought the two institutions together in an increasingly closed and permanent symbiosis." It's important to note that the American monetary system Rothbard describes – especially the post-1971 experiment in fiat money – is the one the world now uses. Gold is held, inreasingly we might add, by central banks as a reserve. But for the most part, the world has been on the Dollar standard since 1971. And the Dollar is backed by exactly nothing other than the full faith and credit of the United States government. It would be tempting to go into a much longer analysis of the permanent symbiotic relationship between government and banking. If you did, it might suggest that the reckless risk-taking of one entit – enabled by a private authority subcontracted to manage the price of money – is capable of causing permanent and irreversible damage to the credit quality of the other authority. The US banks may be too big to fail. But their liabilities are so large that assuming them or backing them is going to take down the US government and its money. And when its money is the world's chief reserve asset, the world is in trouble when US banks are in trouble. So yes, the world is in trouble (although the moon is still beautiful). We won't go into any more depth on the symbiotic relationship between centralized power and centralized money. But we will say, for a variety of reasons, that even though the symbiosis is permanent, the lifespan of the abominable organization this unification has produced is not. Political arrangements to govern and regulate the economy don't last forever when they are based on unsound money. We're not exactly breaking any new ground with this analysis. But for investors, a newer issue is whether metals other than gold and silver are equal stores of value in a world moving away from financial assets and toward "hard assets". This is the case Dr. Alex Cowie made yesterday in the newly published monthly issue of Diggers and Drillers. In deference to his paying subcribers, we're not going to say too much about the details of the cae he's made or the stock he's recommended. But Alex has essentially made the case that because of an extremely favorable supply/demand scenario, and because copper is enjoying a bid as "hard and tangible asset", copper prices are both headed higher AND more resilient to the big falls on slower economic growth we saw in 2008. This isn't a small claim. There was an enormous amount of leverage in commodity prices in 2008. When the credit crunch hit and the leveraged dried up, commodities prices crashed and so did commodities stocks. Is today any different? Alex argues that it is. And at a fundamental level, he concludes that the growth of the emerging (emerged) markets is the bigger drive of base metals prices over the next twenty years than anything that happens in the American mortgage market. He may have a point. But even if you're bearish on global economic growth – say because you believe China's commodity demand is itself the product of a huge stonking property/credit bubble – there is a case to made for base metals aslo being "financialised" into the world's investment markets now the same way gold and sliver were a few years ago through exchange traded funds. The other, slightly less cheerful argument, is that the breakdown of the post-1971 world money system leads to currency wars. And if currency wars – which amount to contests over the real price of labour and commodities and who is to benefit from them most – lead to real wars, real wars are probably bullish for copper. But don't take our word for it. Check out the chart below. Copper may not be money. And in the past thirty years, its price per Pound is most highly correlated with economic growth. That's because it' used in all sorts of construction activity, especially electricity, houses, and cars (everyone needs them all). But copper made its 100-year high at $6.30 per pound during the Great War. That is the last time the world of integrated trade, travel, commerce and capital flows broke down utterly. Scarce resources became politically scarcer. If the symbiotic partnership between central banking and big government is in rapid systemic decline, gold and silver will go to the moon (gold, presumably for the first time). Base metals like copper might not be far behind. And if things reach that point, you might want to own some lead and brass too. Buying Gold and physical Silver Bullion – now simple, secure and cost-effective at BullionVault...

Wall Street Gone Wrong Posted: 22 Oct 2010 11:34 PM PDT Risk management litmus tests for the next generation of Wall Street brains... The NOBEL PRIZE panel granted its top award to seven leading economists – whose theories went on to cost investors trillions of Dollars in losses. This story – as well as some of the other top financial fiascos through the ages – is detailed in the new book, Alchemists of Loss: How Modern Finance and Government Intervention Crashed the Financial System, written by Martin Hutchinson, a former merchant banker and Money Morning columnist, and Kevin Dowd, an economist and respected academic. Here, Money Morning executive editor William Patalon III sits down with Hutchinson to talk about the book... Money Morning: Congratulations, Martin. Alchemists of Loss is a great book. What prompted you guys tackle this topic. Was there a single incident or event that motivated you to do it, or was there kind of an "epiphany" moment? Hutchinson: I did a piece on risk management for Financial Engineering News in late 2006, which the editor sent to Kevin Dowd to review (my article said that Wall Street had it all wrong and should be using fuzzy logic). Kevin sent a lengthy reply, through which we discovered we agreed on a lot; so we became buddies and agreed we should do a project together. When the crash happened, it looked like an excellent opportunity, and much to my joy, he had the contacts at the publisher, John Wiley & Sons Ltd, to get it accepted. MM: What major conclusion, or conclusions, did you come to in your research... as well as in the book itself? What's the most important conclusion you reached? Hutchinson: Kevin may disagree, but my favorite section is Chapter 15, which is about risk management. There we propose two "litmus tests" for extreme risks that Wall Street should be using today to weed out CDO squared, credit default swaps and the other rubbish the "quants" may come up with in the future. We think our "litmus tests" are strong enough to catch anything they can come up with, but recognize that we could always be surprised! Of course, our overall conclusion that they granted seven Nobels for a spurious set of theories was also an enjoyable one! Tracing how the modern finance theory virus got into Wall Street was interesting – Kevin knew all sorts of stuff that I didn't, and vice versa. MM: Did this experience change your views on global finance, investing, and the lot? Or did it reinforce your views? In either case, what was that key view? Hutchinson: I think it crystallized and reinforced my view that Wall Street has gone wrong in the last 25 years, and that misguided incentives and agency problems are crucial in explaining why it went off the rails. I did a piece, "The rent seekers of Wall Street," in April 2006, so I was already thinking along these lines, but doing the book made it all much clearer. Chapter 7 (mostly Kevin) on managerial versus shareholder capitalism was also key to explaining what had gone wrong. MM: Did anything surprise you in your research? In other words, is there something you found out, or discovered, that created a "holy cow!" moment? Hutchinson: There were several. Among the most illuminating was the discovery that Overend, Gurney & Co. (a London wholesale discount bank that was known as "the banker's bank), which had gone bust in 1866, had made essentially the same mistakes as Lehman Brothers! MM: Is there anything else about this experience, or your research, that you'd like to mention? Hutchinson: Books, particularly with a really good collaborator (so you have someone to discuss it with, apart from the unfortunate wife and family), and a publisher you have confidence in, are enormously satisfying to write, because you feel (somewhat spuriously, of course) that you've done something permanent. Journalism, let alone blogs, doesn't do that. Years from now – say, in 2300 – the book will still be in the British Museum Reading Room and the Library of Congress. So some future economic history student can get his Ph.D through rediscovering it! Get the safest gold at the lowest prices using the award-winning world No.1, BullionVault...

Dollar Shocker! Not the Worst vs. Gold Posted: 22 Oct 2010 11:31 PM PDT Gold Bullion has risen faster against the Euro and Sterling than vs. the Dollar... TO THE SURPRISE of many investors, the Yankee Dollar has earned only a third-place ribbon for its depreciation against gold over the past 12 months, writes Brad Zigler at Hard Assets Investor. With all the recent hoopla and headlines about gold making new highs against the greenback, the destruction derby of the world's reserve currencies is actually won by the Euro, with Sterling close behind, on an annual basis. Over the past year, the US Dollar lost 29.8% vs. bullion compared with a 39.7% tumble for the European common currency and a 34.5% decline in the British Pound. Bringing up the rear is the Swiss Franc, with a 23.1% loss, and the Japanese Yen, which gave up 16.4% to gold. Oddly enough, the US Dollar is also the least volatile reserve currency when it comes to Gold Bullion purchasing power, too. The standard deviation of the Gold Price in Dollars stands at just 15.3% for the past year. This may not seem like a testament to the Fed's steady hand on the nation's economic tiller, but it's something. It actually bespeaks the wait-and-see attitude of the central bank after last year's stimulus and accommodation. The likelihood of Fed intervention increases when commodity prices – a basic metric of inflation – rise or fall significantly compared with Treasury securities. In the chart below, the red Fed Indicator line dances within a neutral zone – a condition that compels the central bank to watch, but not act. A sustained move in the indicator above the upper band would signal an increased likelihood of accommodation – or lower money rates and a weaker Dollar. A dip below the lower band flashes a higher probability of tightening, or higher rates and a stronger Dollar... Keep in mind that this indicator is just that – an indicator. It measures the likelihood of Fed intervention, not its certainty. Political considerations – which can be substantial – are put aside here. For now, the Fed's keeping a fairly even keel – even though it's been economically painful for employees or the unemployed. There's nascent inflation, reflected in the blue line's recent trajectory, which complicates the Fed's handling of the Dollar. What's economically expedient may not be politically fruitful. On the other side of The Pond, Sterling's been the most volatile currency, flopping about with a 17.8% standard deviation in the Gold Bullion market. Largely, this reflects the rising and falling fortunes of the former Labour government. And with all this, one can't ignore the longer-term trends. Since the Euro's introduction in 1999, the Pound's lost more ground to Gold Bullion than any other reserve currency. Sterling's average annual loss in gold purchasing power has been 15.3%. The US Dollar follows with an average loss of 14.8% per year. Meantime, the Euro's given up an average 13.1% each year. Kinda makes you wonder who'll take the pennant next year! Buying Gold online today...?

Market Analysis Posted: 22 Oct 2010 10:47 PM PDT Roger Wiegand is a technical analyst that reviews much historic data along with current and future charts to figure out where the market and economy is headed. Roger gives market data and comments below. Dow Jones Industrial Average: Closed at 11062.78 -31.79 on 125% of normal volume as big bank stocks took a hit. Bank of America was reduced from buy to hold by one rating agency. Further damage is expected from their association with Countrywide Mortgage creating a major multi-million dollar fine. Write-offs in banks appear to be getting worse faster. Technically, the Dow high is 11200-11250 maybe producing a bear double top as we did forecast. Momentum is up but the trading range signals sideways to down on Monday. While price is above all moving averages and one support line, traders are wavering as the top grows near. S&P 500 Index: Closed at 1176.19 +2.38 on flattening momentum and 130% of normal volume. The trend remains up as price flies upward at a 60 degree angle. The 45 degree lines are more normal. We think this is a strain for gain and when it hits the top and voting is over, a faster selling event could transpire. Price is hanging around 1165-1175 support and resistance. Given enough push trading and PPT inspiration, the 500 index can rally to 1200 on a bear double top. Current trading behavior says no but we think it could be needed since markets must stay propped for the voting and higher year-end fund closeouts. S&P 100 Index: Closed at 530.78 +0.76 on waning momentum and 130% of normal volume, resonates a top coming very soon. The close was in the middle of the price bar trading range; undecided. We now see a fully completed massively wide head and shoulders top from last January to the present. Price action is stalling on that right shoulder in congestion. It is possible this index could go sideways and perhaps sink to 520-510 support and still not wreck the bonus topping plans. We expect this levitation for most of next week followed by a selling, sinking drop the last week of this month. That kind of trading would still give enough time for market propping before the election. This is our forecast. Nasdaq 100 Index: Closed at 2097.73 +43.22 after Google posted a great report. This popped the price out of a wider double-top giving strength to the index and closing on the high. Momentum has been flat but is now peaking-up in a reaction. Volume was normal and 2050 is now support with 2150-2200 new resistance. Since this index is the leader of all indexes, this is telling us the election buying and propping shall continue. No surprise to us here. Look for more buying next week followed by selling in the last week of October. Then we could see an election rebound moving into fall congestion. Look for higher highs, another correction and then a top at year-end. We think January to March 2011 could get very rough for shares. 30-Year Bonds: Closed at 131.03 -1.41 on falling momentum after posting a bear double top last week. With shares straining to rise further and bonds being overbought, we see a lot of bond selling for the next 2-3 months in steps and stairs lower. Price fell under the supporting trading channel and closed on the 50-day average but under the 20 -day. There is hard support at 130.00 and resistance at 131.50 but 126.00-126.50 is where we are heading on our predictions. Gold: Closed at 1368.20 -12.10 in a mild ABC peaking correction. This is normal and should continue next week. Then, we forecast a beginning of the last big 4th quarter gold rally from November to the end of the year. After mild lower support, there is a chance gold can fly all the way to $1450-1476 as a peak on the December futures. Momentum is in a pause but should regain its footing. Resistance is the high this week of $1380 with lower support at $1362.50. If and when the latter is broken, we forecast $1348.50 followed by a rebounding rally. Keep in mind trading ranges are going wider and faster. Look at what silver did this week. Gold futures have no trading limits, but silver does. As we go deeper into this rally, we predict gold touches $1600 by spring. If the bonds really get hurt by Bernanke, and the dollar, it could be closer to $1,942. Silver: Closed at 24.28 -0.33 after the Dec futures touched our forecast high and major resistance at $24.95-$25.00. From the end of August, silver rallied from $18 to $25; a fantastic move. Momentum is up and strong. Price has gone very far very fast. In light of this, we see new and lower correction support at $22.48 near the 20-day moving average. Keep in mind if silver were inflation adjusted it would be closer to $50 than $25. Silver is toppy but can touch $26 before this current rally is over. Then, it's followed by a correction to $22.48-$23.00. Silver should move up again into the end of the year touching $30.18 on a higher high. Gold & Silver Index (XAU): Closed at 206.06 -2.30 on peaking but rising momentum and a flat to down metal to shares ratio. That ratio is a great signal and while being flat there is room to continue more buying on the EMA exponential moving average chart. We noticed the price bar trading range closed ABOVE the top channel line. So while price is going weaker, it is sitting on hard support just above that channel line. This is bullish. However, we can expect some XAU selling the last week of this month with a drop from 210 to 200-192 on the 50 day moving average. From November 3 to the end of the year look for new highs in this market as the physical metals take a rocket ride. U.S. Dollar Index: Closed at 76.99 +0.34 after falling from 83.50 at the end of August and touching 75-76 this week. Momentum is falling and oversold. Singapore propped their currency overnight adding +1% growth annualized. The nation is small but powerful with traders and investors. This country is now perceived as safer and better than Switzerland. The dollar can sell some more but very little. We see support at 76.33 on the futures today and the cash at about 76.00-75.50. We forecast the dollar to recover a little and touch 77.50-78.50 as a new and intermittent high. Then, we get more selling back to 75.50 support at the end of this year. It can even go lower depending on the global markets' reaction to Bernanke's dumping $500 billion in new bond paper between now and year end. The larger effects from that will be felt in the first quarter of 2011 and could mess-up all the markets creating severe reactions. Crude Oil: Closed at 82.11 -1.30 on rising momentum and trading congestion between 83.50 and 81.50. We are not short of reserves in the shorter view. This market is propped by pure inflation. With a selling dollar, oil prices are higher based on real dollar valuations. Whereas the producers in the Middle East were happy with $75.00 on an 80.00 indexed dollar, now they will want $83.00 to $86.50 for their 2011 average price. Support is $82.00 and resistance is $83.50. Expect oil prices to sell back to $80.00-77.00 for most of this month. Then in November, on inflation, new demands and colder weather create a new rally that begins taking price to $85-86.00 resistance again. CRB: Closed at 296.06 -3.87 on falling precious metals prices and some softs but primarily on selling crude oil. Resistance is 300 and support is 292.50-295.00. Today's selling down bar was hard and severe. We expect a 10-15 point correction down to 280-290 in a trading range. Fall could be choppy depending upon oil and gold. We think after the correction, the CRB can go right back to 300 and even higher on several stronger markets within the CRB, by the end of this year. – Traderrog

Bob Moriarty: Hold on to Gold Posted: 22 Oct 2010 10:33 PM PDT

Gold Explained, And Then Some Posted: 22 Oct 2010 09:50 PM PDT

It's the Flow, Stupid Posted: 22 Oct 2010 09:49 PM PDT "Gold has always been funny in that way. So many people worldwide think of it as money, it tends to dry up as the price rises."(ANOTHER, 1997)All the gold in the world is a fixed quantity. It always has been. It just gets moved around like poker chips on a table. Some of it is still in the ground and some is above ground, in portable form. But it is all owned by someone, underground or above. If

As I’ve been saying . . . [Suicide] Bankers ’caused credit crisis for kicks’ Posted: 22 Oct 2010 08:39 PM PDT Forget the thorny problems of risk, regulation and even reward: bankers blew up the financial system for the thrill of it, according to one British academic. MK: The banking and financial system is plastic. You can play around with it. This is the idea behind HSX and Karmabanque. Anybody can reshape capitalism in anyway they want to. Shame on anyone being victimized by these playful bankers who refuses to simply reshape the system in their favor. Prices and markets are not representative of underlying supply and demand. If YOU want the prices of bank stocks or Coca-Cola to be zero, YOU can make it happen. It's a game. A game YOU are losing at the moment because YOU refuse to accept that the prices of the things you hold dear are figments in the imagination of gamers. YOU have an imagination too. Use it (by the way, a few gamers 'see' the price of gold at $5,000 – so be it. It'll get there because, what the heck . . . why not?)

Gold Forecaster Capital Controls or Chaos? Posted: 22 Oct 2010 07:31 PM PDT

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